Attached files
file | filename |
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EX-31.1 - EXHIBIT 31.1 - Cole Real Estate Investments, Inc. | c92523exv31w1.htm |
EX-32.1 - EXHIBIT 32.1 - Cole Real Estate Investments, Inc. | c92523exv32w1.htm |
EX-31.2 - EXHIBIT 31.2 - Cole Real Estate Investments, Inc. | c92523exv31w2.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2009
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 333-149290
COLE CREDIT PROPERTY TRUST III, INC.
(Exact name of registrant as specified in its charter)
Maryland | 26-1846406 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification Number) | |
2555 East Camelback Road, Suite 400 | ||
Phoenix, Arizona, 85016 | (602) 778-8700 | |
(Address of principal executive offices; zip code) | (Registrants telephone number, including area code) |
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definition of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o | |||
(Do not check if smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
As of
November 12, 2009, there were approximately 80,189,791 shares of common stock, par value
$0.01, of Cole Credit Property Trust III, Inc. outstanding.
COLE CREDIT PROPERTY TRUST III, INC.
INDEX
INDEX
Item 1. Financial Statements |
||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
7 | ||||||||
8 | ||||||||
20 | ||||||||
28 | ||||||||
28 | ||||||||
29 | ||||||||
29 | ||||||||
29 | ||||||||
29 | ||||||||
29 | ||||||||
29 | ||||||||
29 | ||||||||
30 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 |
2
Table of Contents
PART I
FINANCIAL INFORMATION
FINANCIAL INFORMATION
The accompanying condensed consolidated unaudited interim financial statements as of and for
the three and nine months ended September 30, 2009, have been prepared by Cole Credit Property
Trust III, Inc. (the Company) pursuant to the rules and regulations of the Securities and
Exchange Commission regarding interim financial reporting. Accordingly, they do not include all of
the information and footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements and should be read in conjunction with the
audited financial statements and related notes thereto included in the Companys annual report on
Form 10-K for the period from January 22, 2008 (date of inception) to December 31, 2008. The
financial statements herein should also be read in conjunction with the notes to the financial
statements and Managements Discussion and Analysis of Financial Condition and Results of
Operations contained in this Quarterly Report on Form 10-Q. The results of operations for the
three and nine months ended September 30, 2009 are not necessarily indicative of the operating
results expected for the full year. The information furnished in our accompanying condensed
consolidated unaudited balance sheets and condensed consolidated unaudited statements of
operations, stockholders equity, and cash flows reflects all adjustments that are, in our opinion,
necessary for a fair presentation of the aforementioned financial statements. Such adjustments are
of a normal recurring nature.
Forward-looking statements that were true at the time made may ultimately prove to be
incorrect or false. We caution investors not to place undue reliance on forward-looking
statements, which reflect our managements view only as of the date of this Quarterly Report on
Form 10-Q. We undertake no obligation to update or revise forward-looking statements to reflect
changed assumptions, the occurrence of unanticipated events or changes to future operating results.
The forward-looking statements should be read in light of the risk factors identified in the Item
1A Risk Factors section of the Annual Report on Form 10-K.
3
Table of Contents
COLE CREDIT PROPERTY TRUST III, INC.
CONDENSED CONSOLIDATED UNAUDITED BALANCE SHEETS
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
ASSETS |
||||||||
Investment in real estate assets: |
||||||||
Land |
$ | 174,012,191 | $ | | ||||
Buildings and improvements, less accumulated depreciation of $1,472,934 |
189,526,781 | | ||||||
Acquired intangible lease assets, less accumulated amortization of $1,238,783 |
72,407,018 | | ||||||
Total investment in real estate assets, net |
435,945,990 | | ||||||
Cash and cash equivalents |
217,505,378 | 172,493 | ||||||
Restricted cash |
1,500,183 | 2,849,043 | ||||||
Rents and tenant receivables |
1,574,583 | | ||||||
Prepaid expenses, mortgage loan deposits and other assets |
312,724 | 11,293 | ||||||
Deferred financing costs, less accumulated amortization of $95,641 |
2,022,197 | | ||||||
Total assets |
$ | 658,861,055 | $ | 3,032,829 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Notes payable |
$ | 79,890,000 | $ | | ||||
Accounts payable and accrued expenses |
1,309,977 | 84,934 | ||||||
Escrowed investor proceeds |
1,443,931 | 2,849,043 | ||||||
Due to affiliates |
237,541 | | ||||||
Acquired below market lease intangibles, less accumulated amortization of $222,698 |
12,933,147 | | ||||||
Distributions payable |
3,294,502 | | ||||||
Derivative liabilities |
293,413 | | ||||||
Deferred rent and other liabilities |
1,111,745 | | ||||||
Total liabilities |
100,514,256 | 2,933,977 | ||||||
Redeemable common stock |
5,558,875 | | ||||||
STOCKHOLDERS EQUITY: |
||||||||
Preferred stock, $0.01 par value; 10,000,000 shares authorized, none issued and
outstanding |
| | ||||||
Common stock, $0.01 par value; 490,000,000 shares authorized, 64,527,332 and
20,000 shares issued and outstanding, respectively |
645,273 | 200 | ||||||
Capital in excess of par value |
571,644,832 | 199,800 | ||||||
Accumulated distributions in excess of earnings |
(19,208,768 | ) | (101,148 | ) | ||||
Accumulated other comprehensive loss |
(293,413 | ) | | |||||
Total stockholders equity |
552,787,924 | 98,852 | ||||||
Total liabilities and stockholders equity |
$ | 658,861,055 | $ | 3,032,829 | ||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
4
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COLE CREDIT PROPERTY TRUST III, INC.
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS
For the period from | ||||||||||||||||
January 22, 2008 | ||||||||||||||||
Nine Months Ended | (Date of Inception) to | |||||||||||||||
Three Months Ended September 30, | September 30, | September 30, | ||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Revenues: |
||||||||||||||||
Rental and other income |
$ | 7,590,106 | $ | | $ | 11,071,246 | $ | | ||||||||
Tenant reimbursement income |
109,329 | | 112,684 | | ||||||||||||
Total revenue |
7,699,435 | | 11,183,930 | | ||||||||||||
Expenses: |
||||||||||||||||
General and administrative expenses |
752,974 | | 1,220,781 | | ||||||||||||
Property operating expenses |
188,198 | | 208,406 | | ||||||||||||
Property and asset management expenses |
651,823 | | 933,645 | | ||||||||||||
Acquisition related expenses |
4,664,775 | | 11,299,339 | | ||||||||||||
Depreciation |
1,012,632 | | 1,472,934 | | ||||||||||||
Amortization |
707,729 | | 1,111,867 | | ||||||||||||
Total operating expenses |
7,978,131 | | 16,246,972 | | ||||||||||||
Operating loss |
(278,696 | ) | | (5,063,042 | ) | |||||||||||
Other income (expense): |
||||||||||||||||
Interest income |
142,944 | 1,003 | 237,155 | 3,022 | ||||||||||||
Interest expense |
(838,477 | ) | | (1,080,012 | ) | | ||||||||||
Total other income (expense) |
(695,533 | ) | 1,003 | (842,857 | ) | 3,022 | ||||||||||
Net (loss) income |
$ | (974,229 | ) | $ | 1,003 | $ | (5,905,899 | ) | $ | 3,022 | ||||||
Weighted average number of common
shares outstanding: |
||||||||||||||||
Basic and diluted |
49,537,023 | 20,000 | 26,146,998 | 20,000 | ||||||||||||
Net (loss) income per common share: |
||||||||||||||||
Basic and diluted |
$ | (0.02 | ) | $ | 0.05 | $ | (0.23 | ) | $ | 0.15 | ||||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
5
Table of Contents
COLE CREDIT PROPERTY TRUST III, INC.
CONDENSED CONSOLIDATED UNAUDITED STATEMENT OF STOCKHOLDERS EQUITY
Accumulated | ||||||||||||||||||||||||
Common Stock | Distributions in | Accumulated Other | ||||||||||||||||||||||
Number of | Capital in Excess | Excess of | Comprehensive | Total Stockholders | ||||||||||||||||||||
Shares | Par Value | of Par Value | Earnings | Loss | Equity | |||||||||||||||||||
Balance, December
31, 2008 |
20,000 | $ | 200 | $ | 199,800 | $ | (101,148 | ) | $ | | $ | 98,852 | ||||||||||||
Issuance of common stock |
64,527,420 | 645,274 | 643,687,572 | | | 644,332,846 | ||||||||||||||||||
Distributions |
| | | (13,201,721 | ) | | (13,201,721 | ) | ||||||||||||||||
Commissions on stock
sales and related
dealer manager fees |
| | (56,898,764 | ) | | | (56,898,764 | ) | ||||||||||||||||
Other offering costs |
| | (9,591,279 | ) | | | (9,591,279 | ) | ||||||||||||||||
Redemptions of common
stock |
(20,088 | ) | (201 | ) | (193,622 | ) | | | (193,823 | ) | ||||||||||||||
Redeemable common stock |
| | (5,558,875 | ) | | | (5,558,875 | ) | ||||||||||||||||
Net loss |
| | | (5,905,899 | ) | | (5,905,899 | ) | ||||||||||||||||
Unrealized loss on
interest rate swaps |
| | | | (293,413 | ) | (293,413 | ) | ||||||||||||||||
Balance, September 30,
2009 |
64,527,332 | $ | 645,273 | $ | 571,644,832 | $ | (19,208,768 | ) | $ | (293,413 | ) | $ | 552,787,924 | |||||||||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
6
Table of Contents
COLE CREDIT PROPERTY TRUST III, INC.
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
For the Period From | ||||||||
January 22, 2008 | ||||||||
Nine Months Ended | (Date of Inception) to | |||||||
September 30, 2009 | September 30, 2008 | |||||||
Cash flows from operating activities: |
||||||||
Net (loss) income |
$ | (5,905,899 | ) | $ | 3,022 | |||
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities: |
||||||||
Depreciation |
1,472,934 | | ||||||
Amortization |
1,016,085 | | ||||||
Amortization of deferred financing costs |
95,641 | | ||||||
Changes in assets and liabilities: |
||||||||
Rents and tenant receivables |
(1,574,583 | ) | | |||||
Prepaid expenses and other assets |
(276,431 | ) | | |||||
Accounts payable and accrued expenses |
1,225,043 | | ||||||
Due to affiliates |
213,072 | | ||||||
Deferred rent and other liabilities |
1,111,745 | | ||||||
Net cash (used in) provided by operating activities |
(2,622,393 | ) | 3,022 | |||||
Cash flows from investing activities: |
||||||||
Change in restricted cash |
1,348,860 | | ||||||
Investments in real estate and related assets |
(425,501,862 | ) | | |||||
Net cash used in investing activities |
(424,153,002 | ) | | |||||
Cash flows from financing activities: |
||||||||
Proceeds from issuance of common stock |
638,580,148 | 200,000 | ||||||
Offering costs on issuance of common stock |
(66,465,574 | ) | | |||||
Redemptions of common stock |
(193,823 | ) | | |||||
Distributions to investors |
(4,154,521 | ) | | |||||
Proceeds from notes payable |
79,890,000 | | ||||||
Proceeds from affiliate notes payable |
41,581,000 | | ||||||
Repayment of affiliate notes payable |
(41,581,000 | ) | | |||||
Escrowed investor proceeds liability |
(1,405,112 | ) | | |||||
Payment of loan deposits |
(1,597,800 | ) | | |||||
Refund of loan deposits |
1,572,800 | | ||||||
Deferred financing costs paid |
(2,117,838 | ) | | |||||
Net cash provided by financing activities |
644,108,280 | 200,000 | ||||||
Net increase in cash and cash equivalents |
217,332,885 | 203,022 | ||||||
Cash and cash equivalents, beginning of period |
172,493 | | ||||||
Cash and cash equivalents, end of period |
$ | 217,505,378 | $ | 203,022 | ||||
Supplemental Disclosures of Non-Cash Investing and
Financing Activities: |
||||||||
Distributions declared and unpaid |
$ | 3,294,502 | $ | | ||||
Common stock issued through distribution reinvestment plan |
$ | 5,752,698 | $ | | ||||
Unrealized loss on interest rate swaps |
$ | (293,413 | ) | $ | | |||
Supplemental Cash Flow Disclosures: |
||||||||
Interest paid |
$ | 576,791 | $ | | ||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
7
Table of Contents
COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
September 30, 2009
September 30, 2009
NOTE 1 ORGANIZATION AND BUSINESS
Cole Credit Property Trust III, Inc. (the Company) is a Maryland corporation that was formed
on January 22, 2008, which intends to qualify as a REIT beginning with the taxable year ending
December 31, 2009, the year during which the Company began material operations. Substantially all
of the Companys business is conducted through Cole REIT III Operating Partnership, LP, a Delaware
limited partnership (CCPT III OP). The Company is the sole general partner of and owns an
approximately 99.99% partnership interest in CCPT III OP. Cole REIT Advisors III, LLC (CR III
Advisors), the affiliate advisor to the Company, is the sole limited partner and owner of an
insignificant noncontrolling partnership interest of less than 0.01% of CCPT III OP.
Pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933, as
amended, the Company is offering for sale to the public on a best efforts basis a minimum of
250,000 shares and a maximum of 230,000,000 shares of its common stock at a price of $10.00 per
share and up to 20,000,000 additional shares pursuant to a distribution reinvestment plan under
which its stockholders may elect to have distributions reinvested in additional shares at the
higher of $9.50 per share or 95% of the estimated value of a share of our common stock (the
Offering). The registration statement for the Offering (the Registration Statement) was
declared effective on October 1, 2008. Pursuant to the terms of the Offering, all subscription
proceeds were held in escrow until the Company received subscriptions aggregating $2.5 million.
The Company satisfied the conditions of escrow on January 6, 2009. Additionally, the Company had a
special escrow account for subscriptions from residents of Pennsylvania. The conditions of that
special escrow account were satisfied during the three months ended March 31, 2009.
On January 6, 2009, the Company issued the initial 262,059 shares under the Offering and
commenced its principal operations. Prior to such date, the Company was considered a development
stage company. As of September 30, 2009, the Company had issued approximately 64.5 million shares
of its common stock in the Offering, including approximately 63.9 million shares sold in the
primary offering and approximately 606,000 shares sold pursuant to the distribution reinvestment
plan, (the DRIP), for gross offering proceeds of approximately $644.3 million before offering
costs and selling commissions of approximately $66.5 million. As discussed in the Registration
Statement, the Company intends to use substantially all of the net proceeds from this offering to
acquire and operate a diversified portfolio of commercial real estate investments primarily
consisting of retail and other income producing commercial properties located throughout the United
States, including U.S. protectorates.
The Companys common stock is not currently listed on a national securities exchange. The
Company may seek to list its common stock for trading on a national securities exchange only if a
majority of its independent directors believe listing would be in the best interest of its
stockholders. The Company does not intend to list its shares at this time. The Company does not
anticipate that there would be any market for its common stock until its shares are listed on a
national securities exchange. In the event it does not obtain listing prior to the tenth
anniversary of the completion or termination of the Offering, its charter requires that it either:
(1) seek stockholder approval of an extension or amendment of this listing deadline; or (2) seek
stockholder approval to adopt a plan of liquidation of the corporation.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The condensed consolidated unaudited financial statements of the Company have been prepared in
accordance with the rules and regulations of the Securities and Exchange Commission, including the
instructions to Form 10-Q and Article 10 of Regulation S-X, and do not include all of the
information and footnotes required by accounting principles generally accepted in the United States
of America (GAAP) for complete financial statements. In the opinion of management, the
statements for the interim periods presented include all adjustments, which are of a normal and
recurring nature, necessary to present a fair presentation of the results for such periods.
Results for these interim periods are not necessarily indicative of full year results. The
information included in this Quarterly Report on Form 10-Q should be read in conjunction with the
Companys audited consolidated financial statements as of and for the period ended December 31,
2008, and related notes thereto set forth in the Companys Annual Report on Form 10-K.
The accompanying condensed consolidated unaudited financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have
been eliminated in consolidation.
8
Table of Contents
COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
Restricted Cash and Escrowed Investor Proceeds
The Company is currently engaged in a public offering of its common stock. Included in
restricted cash was escrowed investor proceeds for which shares of common stock had not been issued
of approximately $1.4 million and approximately $2.8 million as of September 30, 2009 and December
31, 2008, respectively. Restricted cash also included approximately $52,000 of lender reserves to
be held in accordance with the respective lenders loan agreement and approximately $4,000 of
property escrow deposits as of September 30, 2009.
Redeemable Common Stock
The Companys share redemption program provides that all redemptions during any calendar year,
including those upon death or qualifying disability, are limited to those that can be funded with
proceeds from the Companys DRIP. In accordance with the Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC) 480, Distinguishing Liabilities from Equity, the
Company accounts for proceeds received from its DRIP as redeemable common stock, outside of
permanent equity. As of September 30, 2009, the Company had issued approximately 606,000 shares of
common stock under the DRIP, for cumulative proceeds of approximately $5.8 million under its DRIP,
which are recorded as redeemable common stock, net of redemptions, in the condensed consolidated
unaudited balance sheets. As of December 31, 2008, the Company had not issued any shares of common
stock under the DRIP. The Companys share redemption program permits investors to sell shares back
to the Company after they have held them for at least one year, subject to significant conditions
and limitations. The Company may waive the one-year holding period requirement upon request due to
a stockholders death or bankruptcy or other exigent circumstances. As of September 30, 2009, the
Company had redeemed approximately 20,000 shares of common stock for an aggregate price of
approximately $194,000. The Company had not redeemed any shares of common stock as of December 31,
2008.
Reportable Segments
ASC 280, Segment Reporting, establishes standards for reporting financial and descriptive
information about an enterprises reportable segments. The Companys only operating segment
consists of commercial properties, which include activities related to investing in real estate
including retail properties. The commercial properties are geographically diversified throughout
the United States, and the Companys chief operating decision maker evaluates operating performance
on an overall portfolio level. These commercial properties have similar economic characteristics;
therefore the Companys properties have been aggregated into one reportable segment.
Investment in and Valuation of Real Estate Assets
Real estate assets are stated at cost, less accumulated depreciation and amortization.
Amounts capitalized to real estate assets consist of the cost of acquisition, excluding acquisition
related expenses, or construction and any tenant improvements or major improvements and betterments
that extend the useful life of the related asset. All repairs and maintenance costs are expensed
as incurred.
All assets are depreciated on a straight line basis. The estimated useful lives of our assets
by class are generally as follows:
Building
|
40 years | |
Tenant improvements
|
Lesser of useful life or lease term | |
Intangible lease assets
|
Lesser of useful life or lease term |
The Company continually monitors events and changes in circumstances that could indicate that
the carrying amounts of its real estate and related intangible assets may not be recoverable. When
indicators of potential impairment are present, the Company assesses the recoverability of the
assets by determining whether the carrying value of the assets will be recovered through the
undiscounted future operating cash flows expected from the use of the assets and their eventual
disposition. In the event that such expected undiscounted future cash flows do not exceed the
carrying value, the Company will adjust the real estate and related intangible assets to their fair
value and recognize an impairment loss. The Company had no assets with indicators of potential
impairment as of September 30, 2009 or December 31, 2008.
9
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COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
Allocation of Purchase Price of Acquired Assets
Upon the acquisition of real properties, the Company allocates the purchase price to acquired
tangible assets, consisting of land, buildings and improvements, and identified intangible assets
and liabilities, consisting of the value of above market and below market leases and the value of
in-place leases, based in each case on their fair values. Acquisition related expenses are
expensed as incurred. The Company utilizes independent appraisals to assist in the determination
of the fair values of the tangible assets of an acquired property (which includes land and
building). The Company obtains an independent appraisal for each real property acquisition. The
information in the appraisal, along with any additional information available to the Companys
management, is used by its management in estimating the amount of the purchase price that is
allocated to land. Other information in the appraisal, such as building value and market rents,
may be used by the Companys management in estimating the allocation of purchase price to the
building and to lease intangibles. The appraisal firm has no involvement in managements
allocation decisions other than providing this market information.
The fair values of above market and below market in-place lease values are recorded based on
the present value (using an interest rate which reflects the risks associated with the leases
acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place
leases and (ii) an estimate of fair market lease rates for the corresponding in-place leases, which
is generally obtained from independent appraisals, measured over a period equal to the remaining
non-cancelable term of the lease including any bargain renewal periods, with respect to a below
market lease. The above market and below market lease values are capitalized as intangible lease
assets or liabilities. Above market lease values are amortized as an adjustment of rental income
over the lesser of the useful life or the remaining terms of the respective leases. Below market
leases are amortized as an adjustment of rental income over the remaining terms of the respective
leases, including any bargain renewal periods. If a lease were to be terminated prior to its stated
expiration, all unamortized amounts of above market and below market in-place lease values relating
to that lease would be recorded as an adjustment to rental income.
The fair values of in-place leases include direct costs associated with obtaining a new tenant
and opportunity costs associated with lost rentals which are avoided by acquiring an in-place
lease. Direct costs associated with obtaining a new tenant include commissions, tenant
improvements, and other direct costs and are estimated in part by utilizing information obtained
from independent appraisals and managements consideration of current market costs to execute a
similar lease. The value of opportunity costs is calculated using the contractual amounts to be
paid pursuant to the in-place leases over a market absorption period for a similar lease. These
intangibles are capitalized as intangible lease assets and are amortized to expense over the lesser
of the useful life or the remaining term of the respective leases. If a lease were to be
terminated prior to its stated expiration, all unamortized amounts of in-place lease assets
relating to that lease would be expensed.
The determination of the fair values of the assets and liabilities acquired requires the use
of significant assumptions with regard to the current market rental rates, rental growth rates,
discount rates and other variables. The use of inappropriate estimates would result in an
incorrect assessment of the Companys purchase price allocations, which could impact the amount of
its reported net income.
The Company estimates the fair value of assumed mortgage notes payable based upon indications
of current market pricing for similar types of debt with similar maturities. Assumed mortgage
notes payable are initially recorded at their estimated fair value as of the assumption date, and
the difference between such estimated fair value and the notes outstanding principal balance is
amortized to interest expense over the term of the mortgage note payable.
Revenue Recognition
Certain properties have leases where minimum rent payments increase during the term of the
lease. The Company records rental revenue for the full term of each lease on a straight-line
basis. When the Company acquires a property, the term of existing leases is considered to commence
as of the acquisition date for the purposes of this calculation. The Company defers the
recognition of contingent rental income, such as percentage rents or increases related to changes
in the consumer price index, until the specific target that triggers the contingent rental income
is achieved. Expected reimbursements from tenants for recoverable real estate taxes and operating
expenses are included in tenant reimbursement income in the period the related costs are incurred.
10
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COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
Rents and Tenant Receivables
Rents and tenant receivables primarily includes amounts to be collected in future periods
related to the recognition of rental income on a straight-line basis over the lease term and cost
recoveries from tenants. The Company makes estimates of the uncollectability of its accounts
receivable related to base rents, expense reimbursements and other revenues. The Company analyzes
accounts receivable and historical bad debt levels, customer credit worthiness and current economic
trends when evaluating the adequacy of the allowance for doubtful accounts. In addition, tenants
in bankruptcy are analyzed and estimates are made in connection with the expected recovery of
pre-petition and post-petition claims. The Companys reported net income or loss is directly
affected by managements estimate of the collectability of accounts receivable. The Company
records allowances for those balances that the Company deems to be uncollectible, including any
amounts relating to straight-line rent receivables.
Deferred Financing Costs
Deferred financing costs are capitalized and amortized on a straight-line basis over the term
of the related financing arrangement, which approximates the effective interest method.
Amortization of deferred financing costs for the three and nine months ended September 30, 2009 was
approximately $89,000 and approximately $96,000, respectively, and was recorded in interest expense
in the condensed consolidated unaudited statements of operations.
Due to Affiliates
Certain affiliates of the Company received, and will continue to receive fees, reimbursements,
and compensation in connection with the Offering, and the acquisition, management, leasing and sale
of the assets of the Company. As of September 30, 2009, approximately $238,000 remained payable to
the affiliates for services provided on behalf of the Company.
Derivative Instruments and Hedging Activities
ASC 815, Derivatives and Hedging (ASC 815), establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in other contracts,
and for hedging activities. Accounting for changes in the fair value of a derivative instrument
depends on the intended use of the derivative instrument and the designation of the derivative
instrument. The change in fair value of the effective portion of the derivative instrument that is
designated as a hedge is recorded as other comprehensive income (loss). The changes in fair value
for derivative instruments that are not designated as a hedge or that do not meet the hedge
accounting criteria of ASC 815 are recorded as a gain or loss to operations.
Earnings Per Share
Earnings per share are calculated based on the weighted average number of common shares
outstanding during each period. Diluted income per share considers the effect of any potentially
dilutive share equivalents.
Concentration of Credit Risk
As of September 30, 2009, the Company had cash on deposit in three financial institutions in
excess of current federally insured levels, totaling approximately $216.8 million, however, the
Company has not experienced any losses in such accounts. The Company limits investment of cash
investments to financial institutions with high credit standing; therefore, the Company believes it
is not exposed to any significant credit risk on cash.
As of September 30, 2009, two tenants in the drugstore, two tenants in the home improvement,
one tenant in the restaurant, one tenant in the department store, and three tenants in the
specialty retail industries comprised approximately 24%, 14%, 12%, 11%, and 10%, respectively, of
2009 gross annualized base rental revenues. Additionally, the Company has certain geographic
concentrations in its property holdings. In particular, as of September 30, 2009, 24 of the
Companys properties were located in Texas, four were located in Nevada, nine were located in
Virginia, and four were located in California, accounting for approximately 18%, 11%, 10%, and 10%
of 2009 gross annualized base rental revenues.
NOTE 3 FAIR VALUE MEASUREMENTS
ASC 820, Fair Value Measurements and Disclosures (ASC 820) defines fair value, establishes a
framework for measuring fair value in GAAP and expands disclosures about fair value measurements.
ASC 820 emphasizes that fair value is a market-based measurement, as opposed to a
transaction-specific measurement and most of the provisions were effective for the Company
beginning January 1, 2008.
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COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
Fair value is defined by ASC 820 as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement
date. Depending on the nature of the asset or liability, various techniques and assumptions can be
used to estimate the fair value. Financial assets and liabilities are measured using inputs from
three levels of the fair value hierarchy, as follows:
Level 1 Inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities that the Company has the ability to access at the measurement date. An active market
is defined as a market in which transactions for the assets or liabilities occur with sufficient
frequency and volume to provide pricing information on an ongoing basis.
Level 2 Inputs include quoted prices for similar assets and liabilities in active markets,
quoted prices for identical or similar assets or liabilities in markets that are not active
(markets with few transactions), inputs other than quoted prices that are observable for the asset
or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally
from or corroborated by observable market data correlation or other means (market corroborated
inputs).
Level 3 Unobservable inputs, only used to the extent that observable inputs are not
available, reflect the Companys assumptions about the pricing of an asset or liability.
The following describes the methods the Company uses to estimate the fair value of the
Companys financial assets and liabilities:
Cash and cash equivalents, restricted cash, rents and tenant receivables, prepaid expenses and
mortgage loan deposits and accounts payable and accrued expenses The Company considers the
carrying values of these financial instruments to approximate fair value because of the short
period of time between origination of the instruments and their expected realization. The
Companys investments in highly liquid money market funds are valued using level 1 inputs.
Notes payable The fair value is estimated using a discounted cash flow technique based on
estimated borrowing rates available to the Company as of September 30, 2009. The fair value and
carrying value of notes payable outstanding each were approximately $79.9 million at September 30,
2009. There were no notes payable outstanding at December 31, 2008.
Derivative Instruments The Companys derivative financial liabilities, included on the
condensed consolidated unaudited balance sheets, represent the Companys interest rate swaps. All
of the derivative instruments are carried at fair value and are valued using Level 2 inputs. The
fair value of these instruments is determined using interest rate market pricing models. The
Company includes the impact of credit valuation adjustments on the derivative instruments measured
at fair value.
Considerable judgment is necessary to develop estimated fair values of financial assets and
liabilities. Accordingly, the estimates presented herein are not necessarily indicative of the
amounts the Company could realize on disposition of the financial assets and liabilities.
In accordance with the fair value hierarchy described above, the following table shows the
fair value of the Companys financial assets and liabilities that are required to be measured at
fair value on a recurring basis at September 30, 2009:
Quoted Prices in | Significant | |||||||||||||||
Active Markets for | Significant Other | Unobservable | ||||||||||||||
Balance at | Identical Assets | Observable Inputs | Inputs | |||||||||||||
September 30, 2009 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Liabilities: |
||||||||||||||||
Interest rate swaps |
$ | 293,413 | $ | | $ | 293,413 | $ | | ||||||||
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COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
NOTE 4 REAL ESTATE ACQUISITIONS
During the nine months ended September 30, 2009, the Company acquired a 100% interest in 91
commercial properties, including 81 single-tenant, freestanding retail properties and ten land
parcels subject to ground leases, for an aggregate purchase price of approximately $425.5 million.
The Company financed the acquisitions with net proceeds of the Offering and through the issuance of
approximately $121.5 million in mortgage notes, generally secured by certain properties. Six of
the commercial properties were acquired from affiliates of the Companys advisor. A majority of
the Companys board of directors, including all of the Companys independent directors, not
otherwise interested in the acquisitions approved the acquisitions as being fair and reasonable to
the Company and that the cost to the Company was not in excess of the current appraised value of
the properties or the cost of the properties to the affiliates. The Company allocated the purchase
price of these properties to the fair value of the assets acquired and liabilities assumed. The
Company allocated the aggregate purchase price of approximately $174.0 million to land,
approximately $191.0 million to building and improvements, approximately $64.9 million to acquired
in-place leases, approximately $13.2 million to acquired below-market leases, and approximately
$8.8 million to acquired above-market leases during the nine months ended September 30, 2009.
During the nine months ended September 30, 2009 the Company expensed approximately $11.3 million of
acquisition costs related to the acquisitions.
The Company recorded revenue for the three and nine months ended September 30, 2009 of
approximately $7.7 million and approximately $11.2 million, respectively, and net loss for the
three and nine months ended September 30, 2009 of approximately $974,000 and approximately $5.9
million, respectively, related to the operations of the Companys acquired properties.
The following information summarizes selected financial information from the combined results
of operations of the Company, as if all of the Companys acquisitions were completed as of the
beginning of each period presented. The Company did not complete any acquisitions during the
period from January 22, 2008 to December 31, 2008.
The Company estimated that revenues, on a pro forma basis, for the three and nine months ended
September 30, 2009, would have been approximately $10.0 million and $29.3 million, respectively,
and net income, on a pro forma basis, for the three and nine months ended September 30, 2009 would
have been approximately $1.3 million and approximately $3.7 million, respectively.
The Company estimated that revenues, on a pro forma basis, for the three months ended
September 30, 2008, and for the period from January 22, 2008 (date of inception) to September 30,
2008 would have been approximately $10.0 million and $27.1 million, respectively and net income, on
a pro forma basis, for the three months ended September 30, 2008 and for the period from January
22, 2008 (date of inception) to September 30, 2008 would have been approximately $1.3 million and
$2.6 million, respectively.
This pro forma information is presented for informational purposes only and may not be
indicative of what actual results of operations would have been had the transactions occurred at
the beginning of each period, nor does it purport to represent the results of future operations.
NOTE 5 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In the normal course of business, the Company uses certain types of derivative instruments for
the purpose of managing or hedging its interest rate risks. The following table summarizes the
notional and fair value of the Companys derivative instruments. Additional disclosures related to
the fair value of the Companys derivative instruments are included in Note 3 above. The notional
value is an indication of the extent of the Companys involvement in each instrument at the time,
but does not represent exposure to credit, interest rate or market risks.
Fair Value of Liability | ||||||||||||||||||||||||||||
Balance Sheet | Interest | Effective | Maturity | September 30, | December 31, | |||||||||||||||||||||||
Derivatives designated as hedging instruments | Location | Notional Value | Rate | Date | Date | 2009 | 2008 | |||||||||||||||||||||
Interest Rate Swaps (1) |
Derivative liabilities | $ | 20,000,000 | 5.95 | % | 9/8/2009 | 8/29/2012 | $ | (293,413 | ) | $ | |
(1) | The Company executed 15 swap agreements with identical terms and with an aggregate notional amount of $20.0 million. |
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COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
Accounting for changes in the fair value of a derivative instrument depends on the intended
use of the derivative instrument and the designation of the derivative instrument. The Company
designated the interest rate swaps as cash flow hedges. The change in fair value of the effective
portion of the derivative instrument that is designated as a hedge is recorded as other
comprehensive income or loss.
The following tables summarize the losses on the Companys derivative instruments and hedging
activities.
Amount of Loss Recognized in Other Comprehensive Loss | ||||||||||||||||||||
Three months | Nine months | Three months | For the period from | |||||||||||||||||
ended | ended | ended | January 22, 2008 | |||||||||||||||||
September 30, | September 30, | September 30, | (Date of Inception) to | |||||||||||||||||
Derivatives in Cash Flow Hedging Relationships | 2009 | 2009 | 2008 | September 30, 2008 | ||||||||||||||||
Interest Rate Swaps (1) |
$ | 293,413 | $ | 293,413 | $ | | $ | |
(1) | There were no portions relating to the change in the fair value of the interest rate swap agreements that were considered ineffective during the nine months ended September 30, 2009. No previously effective portion of gains or losses that were recorded in accumulated other comprehensive loss during the term of the hedging relationship was reclassified into earnings during the three and nine months ended September 30, 2009. |
The Company has agreements with each of its derivative counterparties that contain a provision
whereby if the Company defaults on certain of its unsecured indebtedness, then the Company could
also be declared in default on its derivative obligations, resulting in an acceleration of payment.
The Company is exposed to credit risk in the event of non-performance by its derivative
counterparties. The Company believes it mitigates its credit risk by entering into agreements with
credit-worthy counterparties. In addition, the Companys fair value of interest rate swap
derivative liabilities is adjusted to reflect the impact of the Companys credit quality. As of
September 30, 2009 and December 31, 2008, there have been no termination events or events of
default related to the interest rate swaps.
NOTE 6 NOTES PAYABLE
During the nine months ended September 30, 2009, the Company entered into 20 mortgage notes
payable totaling approximately $79.9 million, with fixed interest rates ranging from 5.95% to 6.45%
per annum, each of which remained outstanding at September 30, 2009. The mortgage notes payable
mature on various dates from August 2012 through September 2019, with a weighted average remaining
term of approximately 5.7 years. One lender can reset the interest rate on September 1, 2013,
related to approximately $30.0 million of the fixed rate debt, at which time the Company can accept
the interest rate through the maturity date of September 1, 2019, or the Company may decide to
reject the rate and prepay the loan on September 1, 2013. Each of the mortgage notes payable are
secured by each of the respective properties on which the debt was placed. The mortgage notes
payable are generally non-recourse to the Company and CCPT III OP, but both are liable for
customary non-recourse carve-outs. The aggregate balance of gross real estate assets, net of
gross intangible lease liabilities securing the notes payable, was approximately $158.1 million as
of September 30, 2009.
During the nine months ended September 30, 2009, the Company also entered into eight loans
totaling approximately $41.6 million, all of which were variable rate debt with interest rates
benchmarked to the 3-month LIBOR rate plus 250 basis points and were secured by the membership
interest held by CCPT III OP in certain wholly-owned subsidiaries of CCPT III OP. Of the $41.6
million, approximately $13.9 million was borrowed from Series B, LLC (Series B), approximately
$15.7 million was borrowed from Series C, LLC (Series C), and approximately $12.0 million was
borrowed from Series D, LLC (Series D), each of which is an affiliate of the Companys advisor.
The loans from Series C and Series D contain a revolving line of credit feature that allows the
Company to borrow up to approximately $15.7 million and approximately $12.0 million, respectively,
and each loan matures in January 2010. The loan from Series B matured on March 31, 2009. The
Companys board of directors, including all of the independent directors not otherwise interested
in the transactions, approved the loans as fair, competitive and commercially reasonable, and
determined that their terms were no less favorable to the Company than loans between unaffiliated
third parties under similar circumstances. The loans were repaid in full during the nine months
ended September 30, 2009, with gross offering proceeds and cash flows generated from operations.
The Company paid approximately $184,000 of interest related to the aforementioned loans from
affiliated entities during the nine months ended September 30, 2009.
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COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
NOTE 7 COMMITMENTS AND CONTINGENCIES
Litigation
In the ordinary course of business, the Company may become subject to litigation or claims.
There are no material legal proceedings pending, or known to be contemplated, against the Company.
Environmental Matters
In connection with the ownership and operation of real estate, the Company may be potentially
liable for costs and damages related to environmental matters. The Company has not been notified
by any governmental authority of any non-compliance, liability or other claim, and the Company is
not aware of any other environmental condition that it believes will have a material adverse effect
on its consolidated financial statements.
NOTE 8 RELATED-PARTY TRANSACTIONS AND ARRANGEMENTS
Certain affiliates of the Company received, and will continue to receive fees, reimbursements
and compensation in connection with the Offering, and the acquisition, financing, management,
leasing and sale of the assets of the Company. Cole Capital Corporation (Cole Capital), the
Companys affiliated dealer manager, received and will continue to receive, a selling commission of
up to 7.0% of gross offering proceeds, before reallowance of commissions earned by participating
broker-dealers, in connection with the Offering. Cole Capital intends to reallow 100% of selling
commissions earned to participating broker-dealers. In addition, Cole Capital received, and will
continue to receive, 2.0% of gross offering proceeds, before reallowance to participating
broker-dealers, as a dealer-manager fee in connection with the Offering. Cole Capital, in its sole
discretion, may reallow all or a portion of its dealer-manager fee to such participating
broker-dealers as a marketing and due diligence expense reimbursement, based on factors such as the
volume of shares sold by such participating broker-dealers and the amount of marketing support
provided by such participating broker-dealers. No selling commissions or dealer-manager fees are
paid to Cole Capital or other broker-dealers in respect to shares sold under the DRIP. During the
three and nine months ended September 30, 2009, the Company paid approximately $25.3 million and
approximately $56.9 million, respectively, to Cole Capital for selling commissions and dealer
manager fees of which approximately $22.3 million and approximately $50.2 million, respectively,
was reallowed to participating broker-dealers. No such fees were paid to Cole Capital during the
period from January 22, 2008 (date of inception) to September 30, 2008. At September 30, 2009,
approximately $25,000 of dealer manager fees had not been paid by the Company, and is included in
due to affiliates on the condensed consolidated unaudited financial statements.
All organization and offering expenses associated with the sale of the Companys common stock
(excluding selling commissions and the dealer-manager fee) are paid for by CR III Advisors or its
affiliates and are reimbursed by the Company up to 1.5% of gross offering proceeds. During the
three and nine months ended September 30, 2009, the Company reimbursed CR III Advisors
approximately $4.3 million and approximately $9.6 million, respectively, for organization and
offering expenses of the Offering. No amounts were reimbursed to CR III Advisors during the period
from January 22, 2008 (date of inception) to September 30, 2008. At September 30, 2009,
approximately $309,000 of such costs had been incurred by CR III Advisors but had not been
reimbursed by the Company.
CR III Advisors or its affiliates also receive acquisition and advisory fees of up to 2.0% of
the contract purchase price of each asset for the acquisition, development or construction of
properties and will be reimbursed for acquisition expenses incurred in the process of acquiring
properties, so long as the total acquisition fees and expenses relating to the transaction does not
exceed 6.0% of the contract purchase price. The Company expects acquisition expenses to be
approximately 0.5% of the purchase price of each property. The Company will not reimburse CR III
Advisors for personnel costs in connection with services for which CR III Advisors receives
acquisition fees. During the three and nine months ended September 30, 2009, the Company paid an
affiliate of CR III Advisors approximately $3.5 million and approximately $8.5 million,
respectively, for acquisition fees. No such fees were paid to CR III Advisors during the period
from January 22, 2008 (date of inception) to September 30, 2008. During the three and nine months
ended September 30, 2009, the Company reimbursed CR III Advisors approximately $210,000 for
acquisition costs incurred in the process of acquiring properties. No such costs were reimbursed
to CR III Advisors during the period from January 22, 2008 (date of inception) to September 30,
2008. At September 30, 2009, approximately $56,000 of such costs had been incurred by CR III
Advisors but had not been reimbursed by the Company, and is included in due to affiliates on the
condensed consolidated unaudited financial statements.
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COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
If CR III Advisors, or its affiliates, provides substantial services, as determined by the
independent directors, in connection with the origination or refinancing of any debt financing
obtained by the Company that is used to acquire properties or to make other permitted investments,
or that is assumed, directly or indirectly, in connection with the acquisition of properties, the
Company will pay CR III Advisors or its affiliates a financing coordination fee equal to 1% of the
amount available under such financing; provided however, that CR III Advisors or its affiliates
shall not be entitled to a financing coordination fee in connection with the refinancing of any
loan secured by any particular property that was previously subject to a refinancing in which CR
III Advisors or its affiliates received such a fee. Financing coordination fees payable from loan
proceeds from permanent financing will be paid to CR III Advisors or its affiliates as the Company
acquires such permanent financing. With respect to any revolving line of credit, no financing
coordination fees will be paid on loan proceeds from any line of credit unless all net offering
proceeds received as of the date proceeds from the line of credit are drawn for the purpose of
acquiring properties have been invested. In addition, with respect to any revolving line of
credit, CR III Advisors or its affiliates will receive financing coordination fees only in
connection with amounts being drawn for the first time and not upon any re-drawing of amounts that
had been repaid by the Company. During the three and nine months ended September 30, 2009, the
Company paid to CR III Advisors approximately $500,000 and approximately $800,000, respectively,
for finance coordination fees. No such fees were paid to CR III Advisors during the period from
January 22, 2008 (date of inception) to September 30, 2008. At September 30, 2009, no amounts were
payable to CR III Advisors for finance coordination fees.
The Company paid, and expects to continue to pay, to Cole Realty Advisors, Inc. (Cole Realty
Advisors), its affiliated property manager, fees for the management and leasing of the Companys
properties. Property management fees are expected to equal 2.0% of revenue for single-tenant
properties and 4.0% of revenue for multi-tenant properties and leasing commissions will be at
prevailing market rates; provided however, that the aggregate of all property management and
leasing fees paid to affiliates plus all payments to third parties will not exceed the amount that
other nonaffiliated management and leasing companies generally charge for similar services in the
same geographic location. Cole Realty Advisors may subcontract its duties for a fee that may be
less than the fee provided for in the property management agreement. The Company will reimburse
Cole Realty Advisors costs of managing and leasing the properties. The Company will not reimburse
Cole Realty Advisors for personnel costs in connection with services for which Cole Realty Advisors
receives real estate commissions. During the three and nine months ended September 30, 2009, the
Company paid to Cole Realty Advisors approximately $135,000 and approximately $200,000,
respectively, for property management fees. During the period from January 22, 2008 (date of
inception) to September 30, 2008, the Company did not pay any fees to Cole Realty Advisors. The
Company reimbursed Cole Realty Advisors approximately $20,000 for property management costs during
three and nine months ended September 30, 2009. During the period from January 22, 2008 (date of
inception) to September 30, 2008, the Company did not reimburse property management costs to Cole
Realty Advisors. At September 30, 2009, approximately $19,000 of such costs had been incurred by
CR III Advisors but had not been reimbursed by the Company, and is included in due to affiliates on
the condensed consolidated unaudited financial statements.
The Company paid, and expects to continue to pay, to CR III Advisors an annualized asset
management fee of 0.50% of the aggregate asset value of the Companys assets (the Asset Management
Fee). The fee is payable monthly in an amount equal to 0.0417% of aggregate asset value as of the
last day of the immediately preceding month. The Company will reimburse costs and expenses
incurred by Cole Realty Advisors in providing asset management services. During the three and nine
months ended September 30, 2009, the Company paid to CR III Advisors approximately $423,000 and
approximately $640,000, respectively, for asset management fees. No such fees were paid to CR III
Advisors during the period from January 22, 2008 (date of inception) to September 30, 2008. During
the three and nine months ended September 30, 2009, the Company reimbursed to CR III Advisors
approximately $38,000 for costs incurred by CR III Advisors in providing asset management services.
No such costs were reimbursed to CR III Advisors during the period from January 22, 2008 (date of
inception) to September 30, 2008. At September 30, 2009, approximately $17,000 of such costs had
been incurred by CR III Advisors but had not been reimbursed by the Company, and is included in due
to affiliates on the condensed consolidated unaudited financial statements.
If CR III Advisors or its affiliates provides a substantial amount of services, as determined
by the Companys independent directors, in connection with the sale of one or more properties, the
Company will pay CR III Advisors or its affiliates up to one-half of the brokerage commission paid,
but in no event to exceed an amount equal to 3% of the sales price of each property sold. In no
event will the combined real estate commission paid to CR III Advisors, its affiliates and
unaffiliated third parties exceed 6% of the contract sales price. In addition, after investors
have received a return of their net capital contributions and an 8% cumulative, non-compounded
annual return, then CR III Advisors is entitled to receive 15% of the remaining net sale proceeds.
The Company will not reimburse CR III Advisors or its affiliates for personnel costs in connection
with services for which CR III Advisors or its affiliates receive real estate commissions. During
the three and nine months ended September 30, 2009, the Company did not pay any fees or amounts to
CR III Advisors or its affiliates relating to the sale of properties. No such fees were paid to CR
III Advisors or its affiliates during the period from January 22, 2008 (date of inception) to
September 30, 2008.
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COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
Upon listing of the Companys common stock on a national securities exchange, a fee equal to
15% of the amount by which the market value of the Companys outstanding stock plus all
distributions paid by the Company prior to listing, exceeds the sum of the total amount of capital
raised from investors and the amount of cash flow necessary to generate an 8% cumulative,
non-compounded annual return to investors will be paid to CR III Advisors (the Subordinated
Incentive Listing Fee).
Upon termination of the advisory agreement with CR III Advisors, other than termination by the
Company because of a material breach of the advisory agreement by CR III Advisors, a performance
fee of 15% of the amount, if any, by which (i) the appraised asset value at the time of such
termination plus total distributions paid to stockholders through the termination date exceeds (ii)
the aggregate capital contribution contributed by investors less distributions from sale proceeds
plus payment to investors of an 8% annual, cumulative, non-compounded return on capital. No
subordinated performance fee will be paid to the extent that the Company has already paid or become
obligated to pay CR III Advisors a subordinated participation in net sale proceeds or the
Subordinated Incentive Listing Fee.
The Company will reimburse CR III Advisors for all expenses it paid or incurred in connection
with the services provided to the Company, subject to the limitation that the Company will not
reimburse CR III Advisors for any amount by which its operating expenses (including the Asset
Management Fee) at the end of the four preceding fiscal quarters exceeds the greater of (i) 2% of
average invested assets, or (ii) 25% of net income other than any additions to reserves for
depreciation, bad debts or other similar non-cash reserves and excluding any gain from the sale of
assets for that period, unless the Companys independent directors find that a higher level of
expense is justified for that year based on unusual and non-recurring factors. The Company will
not reimburse CR III Advisors for personnel costs in connection with services for which CR III
Advisors receives acquisition fees or real estate commissions. During the three and nine months
ended September 30, 2009, the Company reimbursed approximately $222,000 for such costs. No such
costs were reimbursed to CR III Advisors or its affiliates during the period from January 22, 2008
(date of inception) to September 30, 2008. At September 30, 2009, approximately $121,000 of such
costs had been incurred by CR III Advisors but had not been reimbursed by the Company, and is
included in due to affiliates on the condensed consolidated unaudited financial statements.
In connection with the real estate acquisitions noted above in Note 4, the Company entered
into eight loans totaling approximately $41.6 million, all of which were variable rate debt with
interest rates benchmarked to the 3-month LIBOR rate plus 250 basis points and were secured by the
membership interest held by CCPT III OP in certain wholly-owned subsidiaries of CCPT III OP. Of
the $41.6 million, approximately $13.9 million was borrowed from Series B, approximately $15.7
million was borrowed from Series C, and approximately $12.0 million was borrowed from Series D,
each of which is an affiliate of the Companys advisor. The loans from Series C and Series D
contain a revolving line of credit feature that allows the Company to borrow up to approximately
$15.7 million and approximately $12.0 million, respectively and each loan matures in January 2010.
The loan from Series B matured on March 31, 2009. The Companys board of directors, including all
of the independent directors not otherwise interested in the transactions, approved the loans as
fair, competitive and commercially reasonable, and determined that their terms were no less
favorable to the Company than loans between unaffiliated third parties under similar circumstances.
The loans were repaid in full during the nine months ended September 30, 2009, with gross offering
proceeds. The Company paid approximately $184,000 of interest related to the aforementioned loans
from affiliated entities.
During the nine months ended September 30, 2009, the Company acquired a 100% interest in six
commercial properties from affiliates of the Companys advisor for an aggregate purchase price of
approximately $46.2 million. A majority of the Companys board of directors, including all of the
Companys independent directors, not otherwise interested in the acquisitions, approved the
acquisitions as being fair and reasonable to the Company, and that the cost to the Company was not
in excess of the current appraised value of the properties or the cost of the properties to the
affiliates.
NOTE 9 ECONOMIC DEPENDENCY
Under various agreements, the Company has engaged or will engage CR III Advisors and its
affiliates to provide certain services that are essential to the Company, including asset
management services, supervision of the management and leasing of properties owned by the Company,
asset acquisition and disposition decisions, the sale of shares of the Companys common stock
available for issue, as well as other administrative responsibilities for the Company including
accounting services and investor relations. As a result of these relationships, the Company is
dependent upon CR III Advisors and its affiliates. In the event that these companies were unable
to provide the Company with the respective services, the Company would be required to find
alternative providers of these services.
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COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
NOTE 10 NEW ACCOUNTING PRONOUNCEMENTS
In December 2007, the FASB issued Statements of Financial Accounting Standards (SFAS) No.
141 (revised 2007), Business Combinations, codified primarily in ASC 805, Business Combinations
(ASC 805). ASC 805 clarifies and amends the accounting guidance for how an acquirer in a
business combination recognizes and measures the assets acquired, liabilities assumed, and any
noncontrolling interest in the acquiree. The provisions of ASC 805 became effective for the
Company for any business combinations occurring on or after January 1, 2009. The adoption of ASC
805 has had a material impact on the condensed consolidated unaudited financial statements due to
the expensing of acquisition costs, which previously would have been capitalized under SFAS No.
141. The Company expensed approximately $4.7 million and approximately $11.3 million of
acquisition expenses during the three and nine months ended September 30, 2009, respectively.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements an Amendment of ARB 51, codified primarily in ASC 810, Consolidation (ASC
810). This statement amends ARB 51 and revises accounting and reporting requirements for
noncontrolling interest (formerly minority interest) in a subsidiary and for the deconsolidation of
a subsidiary. SFAS No. 160 was effective for the Company on January 1, 2009. The provisions of
this standard are applied retrospectively upon adoption. The adoption of ASC 810 has not had a
material impact on the Companys condensed consolidated unaudited financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities an amendment to FASB Statement No. 133, codified primarily in ASC 815,
Derivatives and Hedging (ASC 815), which requires additional disclosures about an entitys
derivative and hedging activities including, descriptions of how and why the entity uses derivative
instruments, how such instruments are accounted for under SFAS No. 133 and how derivative
instruments affect the entitys financial position, operations, and cash flow. The adoption of ASC
815 has not had a material impact on the Companys condensed consolidated unaudited financial
statement disclosures.
In April 2009, the FASB issued FASB Staff Position (FSP) No. SFAS 157-4, Determining Fair
Value when the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions that are not Orderly (FSP No. SFAS 157-4), codified primarily in ASC
820, Fair Value Measurements and Disclosures (ASC 820), which provides guidance on determining
fair value when market activity has decreased. The Company elected to early adopt ASC 820 as it
relates to FSP No. SFAS 157-4 beginning January 1, 2009. Its adoption has not had a material
impact on the Companys condensed consolidated unaudited financial statements.
In April 2009, the FASB issued FSP SFAS 115-2 and SFAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments, codified primarily in ASC 320, InvestmentsDebt and Equity
Securities (ASC 320), addresses other-than-temporary impairments for debt securities. The
Company elected to early adopt ASC 320 beginning January 1, 2009. The adoption of ASC 320 has not
had a material impact on the Companys condensed consolidated unaudited financial statements.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events, codified primarily in ASC 855,
Subsequent Events (ASC 855), which provides guidance to establish general standards of accounting
for and disclosures of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. ASC 855 also requires entities to disclose
the date through which subsequent events were evaluated as well as the rationale for why that date
was selected. ASC 855 was effective for the Company on April 1, 2009. The additional disclosures
required by this pronouncement are included in Note 11 below.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles. The FASB Accounting Standards
Codification (the Codification) will become the source of authoritative GAAP. Rules and
interpretive releases of the Securities and Exchange Commission under authority of federal
securities laws are also sources of authoritative GAAP for Securities and Exchange Commission
registrants. The Codification became effective on July 1, 2009 and superseded all then-existing
non-Securities and Exchange Commission accounting and reporting standards. All other
non-grandfathered non-Securities and Exchange Commission accounting literature not included in the
Codification is nonauthoritative. The Company adopted the Codification beginning on July 1, 2009.
Because the Codification is not intended to change GAAP, it did not have a material impact on the
Companys condensed consolidated unaudited financial statements.
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COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
In August 2009, the FASB issued Accounting Standard Update (ASU) 2009-05, Fair Value
Measurements and Disclosures (ASU 2009-05), which provides alternatives to measuring the fair
value of liabilities when a quoted price for an identical liability traded in an active market does
not exist. The alternatives include using either (1) a valuation technique that uses quoted prices
for identical or similar liabilities or (2) another valuation technique, such as a present value
technique or a technique that is based on the amount paid or received by the reporting entity to
transfer an identical liability. The amended guidance will be effective for the Company beginning
October 1, 2009. The Company does not expect the adoption of ASU 2009-05 to have a material impact
on its condensed consolidated unaudited financial statements.
NOTE 11 SUBSEQUENT EVENTS
The Company evaluated subsequent events through the date of filing this Quarterly Report on
Form 10-Q on November 12, 2009.
Sale of Shares of Common Stock
As
of November 12, 2009, the Company had received approximately
$801.2 million in gross
offering proceeds through the issuance of approximately 80.2 million shares of its common stock in
the Offering (including shares sold pursuant to the DRIP). As of November 12, 2009, approximately
150.6 million shares remained available for sale to the public for an aggregate offering price of
approximately $1.5 billion in the Offering, exclusive of shares available under the DRIP.
Redemption of Shares of Common Stock
Subsequent to September 30, 2009, the Company redeemed 5,000 shares for $50,000 due to the
request upon the death of a stockholder.
Real Estate Acquisitions
Subsequent to September 30, 2009, the Company acquired a 100% interest in 9 commercial real
estate properties for an aggregate purchase price of approximately $71.0 million. The acquisitions
were funded with net proceeds of the Offering. The Company has not completed its initial purchase
price allocations with respect to these properties and therefore cannot provide the disclosures
included in Note 4 for these properties. Acquisition related expenses totaling approximately $1.7
million were expensed as incurred.
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ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with our condensed consolidated unaudited financial statements, the
notes thereto, and the other unaudited financial data included elsewhere in this Quarterly Report
on Form 10-Q. The following discussion should also be read in conjunction with our audited
consolidated financial statements, and the notes thereto, and Managements Discussion and Analysis
of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for
the period from January 22, 2008 (date of inception) to December 31, 2008. The terms we, us,
our and the Company refer to Cole Credit Property Trust III, Inc.
Forward-Looking Statements
Except for historical information, this section contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995, including discussion
and analysis of our financial condition and our subsidiaries, our anticipated capital expenditures,
amounts of anticipated cash distributions to our stockholders in the future and other matters.
These forward-looking statements are not historical facts but are the intent, belief or current
expectations of our management based on their knowledge and understanding of our business and
industry. Words such as may, will, anticipates, expects, intends, plans, believes,
seeks, estimates, would, could, should or comparable words, variations and similar
expressions are intended to identify forward-looking statements. All statements not based on
historical fact are forward looking statements. These statements are not guarantees of future
performance and are subject to risks, uncertainties and other factors, some of which are beyond our
control, are difficult to predict and could cause actual results to differ materially from those
expressed or implied in the forward-looking statements.
Forward-looking statements that were true at the time they were made may ultimately prove to
be incorrect or false. Investors are cautioned not to place undue reliance on forward-looking
statements, which reflect our managements views only as of the date of this Quarterly Report on
Form 10-Q. We undertake no obligation to update or revise forward-looking statements to reflect
changed assumptions, the occurrence of unanticipated events or changes to future operating results.
Factors that could cause actual results to differ materially from any forward-looking statements
made in this Quarterly Report on Form 10-Q include, among others, changes in general economic
conditions, changes in real estate conditions, construction costs that may exceed estimates,
construction delays, inability to obtain real estate financing, increases in interest rates,
lease-up risks, inability to obtain new tenants upon the expiration or termination of existing
leases, and the potential need to fund tenant improvements or other capital expenditures out of
operating cash flows. The forward-looking statements should be read in light of the risk factors
identified in the Risk Factors section of our Annual Report on Form 10-K for the year ended
December 31, 2008, as filed with the Securities and Exchange Commission.
Managements discussion and analysis of financial condition and results of operations are
based upon our condensed consolidated unaudited financial statements, which have been prepared in
accordance with GAAP. The preparation of these financial statements requires our management to
make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. On a regular basis, we
evaluate these estimates. These estimates are based on managements historical industry experience
and on various other assumptions that are believed to be reasonable under the circumstances.
Actual results may differ from these estimates.
Overview
We were formed on January 22, 2008 to acquire and operate a diverse portfolio of commercial
real estate investments primarily consisting of retail and other income producing commercial
properties located throughout the United States, including U.S. protectorates. We commenced our
principal operations on January 6, 2009, when we issued the initial 262,059 shares of common stock
in the Offering. Prior to such date, we were considered a development stage company. We acquired
our first real estate property on January 6, 2009. We have no paid employees and are externally
advised and managed by CR III Advisors, an affiliate of ours. We intend to qualify as a real
estate investment trust for federal income tax purposes.
As of September 30, 2009, we owned 81 single-tenant, freestanding retail properties, of which
100% of the rentable space was leased, and ten land parcels, each of which is subject to a ground
lease. During the three months ended September 30, 2009, we acquired 32 single-tenant,
freestanding retail properties and two land parcels subject to ground leases. During the nine
months ended September 30, 2009, we acquired 81 single-tenant, freestanding retail properties and
ten land parcels subject to ground leases (See Note 4 to the condensed consolidated unaudited
financial statements accompanying this Quarterly Report on Form 10-Q). We did not acquire any real
estate investments during the period from January 22, 2008 (date of inception) through September
30, 2008. Our results of operations are not indicative of those expected in future periods as we
expect that rental income, operating expenses, property and asset management fees, acquisition
expenses, depreciation expense, and interest expense will each increase in the future as we acquire
additional properties and as our current properties are owned for an entire reporting period.
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Recent Market Conditions
Although there are signs of recovery, the current mortgage lending and interest rate
environment for real estate in general continues to be disrupted and the overall economic
fundamentals remain uncertain. Domestic and international financial markets experienced
significant disruptions that were brought about in large part by challenges in the world-wide
banking system. These disruptions have severely impacted the availability of credit and have
contributed to rising costs associated with obtaining credit. We expect to experience stringent
lending criteria, which may affect our ability to finance certain property acquisitions.
Additionally, for properties in which we are able to obtain acquisition financing, the interest
rates on such loans may be unacceptable. We expect to manage the current mortgage lending
environment by utilizing fixed rate loans if the terms are acceptable, short-term variable rate
loans, assuming existing mortgage loans in connection with property acquisitions, or entering into
interest rate lock or swap agreements, or any combination of the foregoing. We may also acquire
properties for cash without financing which will reduce the number of properties we can purchase,
and the return on the properties we do purchase may be lower. If we are unable to obtain suitable
financing for future acquisitions or we are unable to identify suitable properties at appropriate
prices in the current credit environment, we may have a large amount of uninvested cash, which may
adversely affect our results of operations. We will continue to evaluate alternatives in the
current market, including purchasing or originating debt backed by real estate, which could produce
attractive yields in the current market environment. All of these events would have a material
adverse effect on our results of operations, financial condition and ability to pay distributions.
The current economic environment has lead to higher unemployment and a decline in consumer
spending. These economic trends have adversely impacted the retail and real estate markets causing
higher tenant vacancies, declining rental rates, and declining property values. As of September
30, 2009, 100% of our rentable square feet were under lease. However, if the current economic
recession persists, we may experience vacancies or be required to reduce rents on occupied space.
If we do experience vacancies, our advisor will actively seek to lease our vacant space; however,
as retailers and other tenants have been delaying or eliminating their store expansion plans, the
amount of time required to re-tenant a property has been increasing.
Results of Operations
Three months ended September 30, 2009
On January 6, 2009, we commenced our principal operations when we issued the initial 262,059
shares of our common stock in the Offering. Prior to such date, we were considered a development
stage company. During the three months ended September 30, 2009, we acquired 32 single-tenant,
freestanding retail properties and two land parcels subject to ground leases. Because we did not
commence principal operations until January 6, 2009, comparative financial data is not presented
for the period from January 22, 2008 (date of inception) to September 30, 2008.
Revenue. Revenue for the three months ended September 30, 2009, totaled approximately $7.7
million. Rental and other income accounted for approximately 99% of our revenue.
General and Administrative Expenses. General and administrative expenses for the three months
ended September 30, 2009 were approximately $753,000, primarily relating to expense reimbursements
to our advisor of $343,000 pursuant to our advisory agreement, as well as state franchise and
income taxes, accounting and legal fees, and escrow and trustee fees.
Property Operating Expenses. For the three months ended September 30, 2009, property operating
expenses were approximately $188,000, which included property taxes, insurance, and maintenance
costs which are substantially reimbursed by the tenants.
Property and Asset Management Expenses. Property and asset management expenses for the three
months ended September 30, 2009 totaled approximately $652,000. Pursuant to the advisory agreement
with our advisor, we are required to pay to our advisor a monthly asset management fee equal to
one-twelfth of 0.50% of the aggregate asset value of our properties determined in
accordance with the advisory agreement as of the last day of the preceding month. Additionally, we
may be required to reimburse expenses incurred by our advisor in providing asset management
services. Pursuant to the property management agreement with our affiliated property manager, we
are required to pay our property manager a property management fee in an amount up to 2% of gross
revenues from each of our single tenant properties and up to 4% of gross revenues from each of our
multi-tenant properties. We may also be required to reimburse our property manager expenses it
incurred relating to managing or leasing the properties.
Property and asset management fees for the three months ended September 30, 2009 totaled
approximately $558,000. Property management fees and asset management fees are directly related to
the rental income generated by such assets and the value of real estate owned by us. During the
three months ended September 30, 2009, our rental revenue was approximately $7.6 million and the
average aggregate value of our real estate assets, net of gross intangible lease liabilities, was
approximately $339.2 million. During the three months ended September 30, 2009, we recorded
approximately $94,000 of expenses related to reimbursement of costs incurred by our advisor in
performing asset management and property management services.
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Acquisition Related Expenses. Acquisition related expenses totaled approximately $4.7
million, which were related to our real estate acquisitions during the three months ended September
30, 2009. Pursuant to the advisory agreement with our advisor we will pay to our advisor 2% of the
contract purchase price of each property or asset acquired. During the three months ended September
30, 2009, we paid approximately $3.5 million to our advisor for acquisition fees. Pursuant to the
advisory agreement with our advisor we may be required to reimburse our advisor for acquisition
expenses incurred in the process of acquiring property or in the origination or acquisition of a
loan. During the three months ended September 30, 2009, we reimbursed our advisor $210,000 in
acquisition expenses.
Depreciation and Amortization Expenses. For the three months ended September 30, 2009,
depreciation and amortization expenses totaled approximately $1.7 million. Depreciation and
amortization expenses are directly related to the value of real estate owned by us. During the
three months ended September 30, 2009, the average aggregate value of our real estate assets, net
of gross intangible lease liabilities, was approximately $339.2 million.
Interest Income. During the three months ended September 30, 2009, interest income was
approximately $143,000. The amount of interest income earned is related to the amount of uninvested
cash during the period and interest rates earned on the uninvested cash.
Interest Expense. During the three months ended September 30, 2009, we incurred interest
expense of approximately $838,000 related to our notes payable outstanding of approximately $79.9
million. Our debt financing costs in future periods will vary based on our level of future
borrowings, which will depend on the level of investor proceeds raised, the cost and availability
of borrowings, and the opportunity to acquire real estate assets fitting our investment needs.
Our property acquisitions during the three months ended September 30, 2009, were initially
financed with proceeds from our Offering, and we subsequently obtained approximately $50.0 million
of fixed rate loans, secured by certain properties owned.
Nine months ended September 30, 2009
On January 6, 2009, we commenced our principal operations when we issued the initial 262,059
shares of our common stock in the Offering. Prior to such date, we were considered a development
stage company. During the nine months ended September 30, 2009, we acquired 81 single-tenant,
freestanding retail properties and ten land parcels subject to ground leases. Because we did not
commence principal operations until January 6, 2009, comparative financial data is not presented
for the period from January 22, 2008 (date of inception) to September 30, 2008.
Revenue. Revenue for the nine months ended September 30, 2009, totaled approximately $11.2
million. Rental and other income accounted for approximately 99% of our revenue.
General and Administrative Expenses. General and administrative expenses for the nine months
ended September 30, 2009 were approximately $1.2 million, primarily relating to expense
reimbursements to our advisor of $343,000 pursuant to our advisory agreement, as well as accounting
and legal fees, escrow and trustee fees, and state franchise and income taxes.
Property Operating Expenses. For the nine months ended September 30, 2009, property operating
expenses were approximately $208,000, which included property taxes, insurance, and maintenance
costs which are substantially reimbursed by the tenants.
Property and Asset Management Expenses. Property and asset management expenses for the nine
months ended September 30, 2009 totaled approximately $934,000. Pursuant to the advisory agreement
with our advisor, we are required to pay to our advisor a monthly asset management fee equal to
one-twelfth of 0.50% of the aggregate asset value of our properties determined in
accordance with the advisory agreement as of the last day of the preceding month. Additionally, we
may be required to reimburse expenses incurred by our advisor in providing asset management
services. Pursuant to the property management agreement with our affiliated property manager, we
are required to pay to our property manager a property management fee in an amount up to 2% of
gross revenues from each of our single tenant properties and up to 4% of gross revenues from each
of our multi-tenant properties. We may also be required to reimburse our property manager expenses
it incurred relating to managing or leasing the properties.
Property and asset management fees for the nine months ended September 30, 2009 totaled
approximately $840,000. Property management fees and asset management fees are directly related to
the rental income generated by such assets and the value of real estate owned by us. During the
nine months ended September 30, 2009, our rental revenue was approximately $11.1 million and the
average aggregate value of our real estate assets, net of gross intangible lease liabilities, was
approximately $212.8 million. During the nine months ended September 30, 2009, we recorded
approximately $94,000 of expenses related to reimbursement of costs incurred by our advisor in
performing asset management and property management services.
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Acquisition Related Expenses. Acquisition related expenses totaled approximately $11.3
million, which were related to our real estate acquisitions during the nine months ended September
30, 2009. Pursuant to the advisory agreement with our advisor we will pay to our advisor 2% of the
contract purchase price of each property or asset acquired. During the nine months ended September
30, 2009, we paid approximately $8.5 million to our advisor for acquisition fees. Pursuant to the
advisory agreement with our advisor we may be required to reimburse our advisor for acquisition
expenses incurred in the process of acquiring property or in the origination or acquisition of a
loan. During the nine months ended September 30, 2009, we reimbursed our advisor $210,000 in
acquisition expenses.
Depreciation and Amortization Expenses. For the nine months ended September 30, 2009,
depreciation and amortization expenses totaled approximately $2.6 million. Depreciation and
amortization expenses are directly related to the value of real estate owned by us. During the nine
months ended September 30, 2009, the average aggregate value of our real estate assets, net of
gross intangible lease liabilities, was approximately $212.8 million.
Interest Income. During the nine months ended September 30, 2009, interest income was
approximately $237,000. The amount of interest income earned is related to the amount of uninvested
cash during the period and interest rates earned on the uninvested cash.
Interest Expense. During the nine months ended September 30, 2009, we incurred interest
expense of approximately $1.1 million, related to our notes payable outstanding of approximately
$79.9 million. Our debt financing costs in future periods will vary based on our level of future
borrowings, which will depend on the level of investor proceeds raised, the cost and availability
of borrowings, and the opportunity to acquire real estate assets fitting our investment needs.
Our property acquisitions during the nine months ended September 30, 2009, were initially
financed with proceeds from our Offering and approximately $41.6 million of variable rate loans
obtained from affiliates of our advisor. We subsequently repaid the variable rate loans with
proceeds from our Offering and obtained approximately $79.9 million of fixed rate loans secured by
certain properties owned during the nine months ended September 30, 2009. Our debt financing costs
in future periods will vary based on our level of future borrowings, which will depend on the level
of investor proceeds raised, the cost and availability of borrowings, and the opportunity to
acquire real estate assets fitting our investment needs.
Modified Funds from Operations
Modified funds from operations (MFFO) is a non-GAAP supplemental financial performance
measure that our management uses in evaluating the operating performance of our real estate
investments. Similar to Funds from Operations (FFO), a non-GAAP financial performance measure
defined by the National Association of Real Estate Investment Trusts (NAREIT) widely recognized
as a measure of operating performance of a real estate company, MFFO excludes items such as real
estate depreciation and amortization, and gains and losses on the sale of real estate assets.
However, changes in the accounting and reporting rules under GAAP that have been put into effect
since the establishment of NAREITs definition of FFO have prompted a significant increase in the
amount of non-cash and non-operating items included in FFO, as defined. In addition to the
adjustments in FFO, MFFO also excludes acquisition related expenses, which are required to be
expensed in accordance with GAAP. We believe that MFFO, which excludes these costs, is more
representative of the operating performance of our real estate portfolio. Depreciation and
amortization in accordance with GAAP implicitly assumes that the value of real estate assets
diminishes predictably over time. Additionally, gains and losses on sale of real estate assets are
non-recurring items that management does not include in its evaluation of the current operating
performance of its real estate investments, rather management believes that the impact of these
items will be reflected over time through changes in rental income or other related costs. Also,
management does not include acquisition related expenses in its evaluation of current operating
performance as acquisition related expenses are funded with proceeds from the Offering and
accordingly will not be incurred in future periods for real estate acquired during the periods
presented below. We believe that MFFO reflects the overall operating performance of our real
estate portfolio, which is not immediately apparent from reported net income. As such, we believe
MFFO, in addition to net income and cash flows from operating activities, as defined by GAAP, is a
meaningful supplemental performance measure and is useful in understanding how our management
evaluates our ongoing operating performance.
However, MFFO should not be considered as an alternative to net loss or to cash flows from
operating activities and is not intended to be used as a liquidity measure indicative of cash flow
available to fund our cash needs.
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Our calculation of MFFO, and a reconciliation to net loss, which is the most directly
comparable GAAP financial measure, is presented in the following table for the periods as
indicated:
Three Months Ended | Nine Months Ended | |||||||
September 30, 2009 | September 30, 2009 | |||||||
Net loss |
$ | (974,229 | ) | $ | (5,905,899 | ) | ||
Add: |
||||||||
Depreciation of real estate assets |
1,012,632 | 1,472,934 | ||||||
Amortization of lease related costs |
707,729 | 1,111,867 | ||||||
Acquisition related expenses |
4,664,775 | 11,299,339 | ||||||
MFFO |
$ | 5,410,907 | $ | 7,978,241 | ||||
Set forth below is additional information that may be helpful in assessing our operating
results:
| In order to recognize revenues on a straight-line basis over the terms of the respective leases, we recognized additional revenue by straight-lining rental revenue of approximately $934,000 and $1.1 million during the three months and nine months ended September 30, 2009, respectively. | ||
| Amortization of deferred financing costs totaled approximately $89,000 and approximately $96,000 million during the three and nine months ended September 30, 2009, respectively. |
Liquidity and Capital Resources
General
Our principal demands for funds are for real estate and real estate-related investments, the
payment of acquisition related expenses, the payment of operating expenses and distributions to
stockholders and payment of principal and interest on any future outstanding indebtedness.
Generally, cash needs for items other than acquisitions and acquisition related expenses will be
generated from operations and our current investments. The sources of our operating cash flows are
primarily driven by the rental income received from leased properties, and interest earned on our
cash balances. We expect to continue to raise capital through our ongoing Offering of common stock
and to utilize such funds and proceeds from secured or unsecured financing to complete future
property acquisitions. As of September 30, 2009, we had raised approximately $644.1 million in the
Offering, net of redemptions and inclusive of amounts raised under our DRIP.
As of September 30, 2009, we had cash and cash equivalents of approximately $217.5 million.
Additionally, as of September 30, 2009, we had unencumbered properties with a gross book value of
approximately $267.5 million that may be used as collateral to secure additional financing in
future periods.
Short-term Liquidity and Capital Resources
We expect to meet our short-term liquidity requirements through net cash provided by property
operations and proceeds from the Offering. Operating cash flows are expected to increase as
additional properties are added to our portfolio. The offering and organization costs associated
with the Offering are initially paid by CR III Advisors, which will be reimbursed for such costs up
to 1.5% of the capital raised by us in the Offering. As of September 30, 2009, our Advisor has
paid approximately $9.9 million of offering and organization costs and we have reimbursed CR III
Advisors for approximately $9.6 million of such costs.
During the nine months ended September 30, 2009, we paid distributions to our stockholders of
approximately $9.9 million, including approximately $5.8 million through the issuance of shares
pursuant to our DRIP. The distributions were funded by adjusted cash flows from operations of
approximately $8.7 million and proceeds from notes payable of approximately $1.2 million. Adjusted
cash flows from operations consists of cash flows used in operating activities of approximately
($2.6 million) adjusted to add back approximately $11.3 million of real estate acquisition related
expenses incurred during the period and expensed in accordance with ASC 805.
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Adjusted cash flows from operations is a non-GAAP financial measure and does not represent
cash flows from operating activities. Cash flows from operating activities as defined by GAAP is
the most directly comparable GAAP measure in determining our ability to generate cash from our real
estate investments because adjusted cash flows from operations includes adjustments that investor
may deem subjective, such as adding back acquisition related expenses. Accordingly, adjusted cash
flows from operations should not be considered as an alternative to cash flows from operating
activities. We consider adjusted cash flows from operations to be a meaningful measure of the
source of cash used to pay distributions to investors, as it adds back real estate acquisition
related expenses, which are a one-time occurrence, used for income generating investments that have
a long-term benefit, to arrive at the ongoing cash flows from operating our real estate assets. We
consider the real estate acquisition related expenses to have been funded by proceeds from our
ongoing Offering because the expenses were incurred to acquire our real estate investments.
On September 30, 2009, our board of directors authorized a daily distribution, based on 365
days in the calendar year, of $0.001849316 per share (which equates to 6.75% on an annualized basis
calculated at the current rate, assuming a $10.00 per share purchase price) for stockholders of
record as of the close of business on each day of the period commencing on October 1, 2009 and
ending on December 31, 2009.
Long-term Liquidity and Capital Resources
On a long-term basis, our principal demands for funds will be for real estate and real
estate-related investments, the payment of acquisition related expenses, for the payment of
operating expenses and distributions to stockholders, and for the payment of interest and principal
on any future indebtedness. Generally, we expect to meet cash needs for items other than
acquisitions and acquisition related expenses from our cash flow from operations, and we expect to
meet cash needs for acquisitions from the net proceeds of our Offering and from debt financings.
We expect that substantially all net cash generated from operations will be used to pay
distributions to our stockholders after certain capital expenditures, including tenant improvements
and leasing commissions, are paid at the properties; however, we may use other sources to fund
distributions as necessary, including the proceeds of our Offering, cash advanced to us by our
advisor, and/or borrowings in anticipation of future cash flow.
Pursuant to our charter, we are required to limit our aggregate borrowings to 75% of the
greater of cost (or 300% of net assets) (before deducting depreciation or other non-cash reserves)
or fair value of our gross assets, unless excess borrowing is approved by a majority of the
independent directors and disclosed to our stockholders in the next quarterly report along with the
justification for such excess borrowing. Our board of directors has adopted a policy to further
limit our borrowings to 60% of the greater of cost (before deducting depreciation or other non-cash
reserves) or fair value of our gross assets unless such borrowing is approved by a majority of the
independent directors and disclosed to our stockholders in the next quarterly report along with a
justification for such excess borrowing. During the nine months ended September 30, 2009, we
obtained borrowings that caused our leverage ratio at certain times to exceed the 60% limitation,
which was approved by our independent directors. The independent directors believed such borrowing
levels were justified for the following reasons:
| the borrowings enabled us to purchase the properties and earn rental income more quickly; | ||
| the property acquisitions were likely to increase the net offering proceeds from our initial public offering by allowing us to show potential investors actual acquisitions, thereby improving our ability to meet our goal of acquiring a diversified portfolio of properties to generate current income for investors and preserve investor capital; and | ||
| based on expected equity sales at the time and scheduled maturities of our short-term variable rate debt, leverage was likely to exceed the charters guidelines only for a limited period of time. |
Our contractual obligations as of September 30, 2009, were as follows:
Payments due by period* | ||||||||||||||||||||
Less Than 1 | More Than 5 | |||||||||||||||||||
Total | Year | 1-3 Years | 4-5 Years | Years | ||||||||||||||||
Principal payments fixed rate debt |
$ | 79,890,000 | $ | 351,600 | $ | 49,538,400 | $ | | $ | 30,000,000 | ||||||||||
Interest payments fixed rate debt |
29,262,186 | 5,062,155 | 12,593,748 | 3,828,000 | 7,778,283 | |||||||||||||||
Total |
$ | 109,152,186 | $ | 5,413,755 | $ | 62,132,148 | $ | 3,828,000 | $ | 37,778,283 | ||||||||||
* | The table above does not include amounts due to our advisor or its affiliates pursuant to our advisory agreement because such amounts are not fixed and determinable. |
25
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Cash Flow Analysis
Operating Activities. Net cash used in operating activities was approximately $2.6 million for
the nine months ended September 30, 2009, primarily due to an increase in depreciation and
amortization expenses totaling approximately $2.6 million, an increase in the change in accounts
payable and accrued expenses of approximately $1.2 million, and an increase in the change in
deferred rent and other liabilities of approximately $1.1 million, offset by a decrease in net
income of approximately $5.9 million and a decrease in the change in rents and tenant receivables
of approximately $1.6 million for the nine months ended September 30, 2009.
Investing Activities. Net cash used in investing activities was approximately $424.2 million
for the nine months ended September 30, 2009, primarily due to the acquisition of 81 commercial
properties and ten land parcels subject to ground leases during the nine months ended September 30,
2009.
Financing Activities. Net cash provided by financing activities was approximately $644.1
million for the nine months ended September 30, 2009, primarily due to net proceeds from the
issuance of common stock under the Offering of approximately $572.1 million and proceeds from notes
payable of approximately $79.9 million.
Election as a REIT
We intend to qualify as a REIT commencing with the taxable year ending December 31, 2009. To
qualify as a REIT, we must meet, and continue to meet, certain requirements relating to our
organization, sources of income, nature of assets, distributions of income to our stockholders and
recordkeeping. Accordingly, to the extent we meet the REIT qualifications, we generally will not
be subject to federal corporate income tax so long as we distribute at least 90% of our REIT
taxable income to our stockholders.
If we fail to qualify as a REIT for any reason in a taxable year and applicable relief
provisions do not apply, we will be subject to tax, including any applicable alternative minimum
tax, on our taxable income at regular corporate rates. We will not be able to deduct distributions
paid to our stockholders in any year in which we fail to qualify as a REIT. We also will be
disqualified for the four taxable years following the year during which qualification was lost
unless we are entitled to relief under specific statutory provisions.
Inflation
We are exposed to inflation risk as income from long-term leases will be the primary source of
our cash flows from operations. We expect there will be provisions in many of our tenant leases
that will protect us from, and mitigate the risk of, the impact of inflation. These provisions may
include rent steps and clauses enabling us to receive payment of additional rent calculated as a
percentage of the tenants gross sales above pre-determined thresholds. In addition, most of our
leases will require the tenant to pay all or a majority of the operating expenses, including real
estate taxes, special assessments and sales and use taxes, utilities, insurance and building
repairs related to the property. However, due to the long-term nature of the leases, the leases
may not reset frequently enough to adequately offset the effects of inflation.
Critical Accounting Policies and Estimates
Our accounting policies have been established to conform to GAAP. The preparation of
financial statements in conformity with GAAP requires us to use judgment in the application of
accounting policies, including making estimates and assumptions. These judgments affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the dates of the financial statements and the reported amounts of revenue and expenses during the
reporting periods. If our judgment or interpretation of the facts and circumstances relating to
the various transactions had been different, it is possible that different accounting policies
would have been applied, thus resulting in a different presentation of the financial statements.
Additionally, other companies may utilize different estimates that may impact comparability of our
results of operations to those of companies in similar businesses. We consider our critical
accounting policies to be the following:
| Investment in and Valuation of Real Estate Assets; | ||
| Allocation of Purchase Price of Acquired Assets; | ||
| Revenue Recognition; | ||
| Income Taxes; and | ||
| Derivative Instruments and Hedging Activities. |
26
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A complete description of such policies and our considerations is contained in our Annual
Report on Form 10-K for the year ended December 31, 2008. Derivative Instruments and Hedging
Activities was not considered a critical accounting policy at December 31, 2008 because such
transactions had not occurred at that time. The information included in this Quarterly Report on
Form 10-Q should be read in conjunction with our audited consolidated financial statements as of
and for the year ended December 31, 2008, and related notes thereto.
Derivative Instruments and Hedging Activities
ASC 815, Derivatives and Hedging, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in other contracts, and
for hedging activities. Accounting for changes in the fair value of a derivative instrument
depends on the intended use of the derivative instrument and the designation of the derivative
instrument. The change in fair value of the effective portion of the derivative instrument that is
designated as a hedge is recorded as other comprehensive income (loss). The changes in fair value
for derivative instruments that are not designated as a hedge or that do not meet the hedge
accounting criteria of ASC 815 are recorded as a gain or loss to operations. Considerable judgment
is necessary to develop estimated fair values of financial assets and liabilities. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts the Company could
realize on disposition of the financial assets and liabilities.
Commitments and Contingencies
We are subject to certain contingencies and commitments with regard to certain transactions.
Refer to Note 7 to our condensed consolidated unaudited financial statements accompanying this
Quarterly Report on Form 10-Q for further explanations.
Related-Party Transactions and Agreements
We have entered into agreements with CR III Advisors and its affiliates, whereby we pay
certain fees to, or reimburse certain expenses of, CR III Advisors or its affiliates for
acquisition and advisory fees and expenses, organization and offering costs, asset and property
management fees and reimbursement of operating costs. See Note 8 to our condensed consolidated
unaudited financial statements included in this Quarterly Report on Form 10-Q for a discussion of
the various related-party transactions, agreements and fees.
Subsequent Events
Certain events occurred subsequent to September 30, 2009 through the date of this Quarterly
Report on Form 10-Q. Refer to Note 11 to our condensed consolidated unaudited financial statements
included in this Quarterly Report on Form 10-Q for further explanation. Such events include:
| Sale of shares of common stock; | ||
| Redemption of shares of common stock; and | ||
| Acquisition of various properties. |
New Accounting Pronouncements
Refer to Note 10 to our condensed consolidated unaudited financial statements included in this
Quarterly Report on Form 10-Q for further explanation of applicable new accounting pronouncements.
27
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of September 30, 2009, we had approximately $79.9 million of fixed rate debt outstanding,
which includes $20.0 million of variable rate mortgage notes for which the interest rate was fixed
through the maturity date through the use of interest rate swaps. As of September 30, 2009, we did
not have any variable rate debt outstanding for which the interest rate had not been fixed through
the use of interest rate swaps and therefore are not directly exposed to interest rate changes. In
the future we may obtain variable rate debt financing to fund certain property acquisitions, and
may be exposed to interest rate changes. Our objectives in managing interest rate risks will be to
limit the impact of interest rate changes on operations and cash flows, and to lower overall
borrowing costs. To achieve these objectives, we will borrow primarily at interest rates with the
lowest margins available and, in some cases, with the ability to convert variable interest rates to
fixed rates. We have entered into derivative financial instruments, such as interest rate swaps in
order to mitigate our interest rate risk on a given variable rate financial instrument. We will
not enter into derivative or interest rate transactions for speculative purposes. We may also
enter into rate lock arrangements to lock interest rates on future borrowings.
As of September 30, 2009, we had 15 interest-rate swap agreements with identical terms
outstanding, which mature on August 2012, with a aggregate notional value of approximately $20.0
million and a fair value of approximately ($293,000). The interest-rate swap agreements fix the
interest rate at 5.95% per annum through the maturity date of each respective loan. The fair value
of these interest rate swaps is dependent upon existing market interest rates and interest- rate
swap spreads. As of September 30, 2009, an increase of 50 basis points in interest rates would
result in an increase to the fair value of these interest rate swaps of approximately $260,000.
We do not have any foreign operations and thus we are not exposed to foreign currency
fluctuations.
Item 4T. Controls and Procedures
In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as
amended (the Exchange Act), our management, under the supervision and with the participation of
our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the
effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form
10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures, as of September 30, 2009, were effective for the
purpose of ensuring that information required to be disclosed by us in this Quarterly Report on
Form 10-Q is recorded, processed, summarized and reported within the time periods specified by the
rules and forms promulgated under the Exchange Act, and is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosures.
No change occurred in our internal controls over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended September 30, 2009 that
has materially affected, or is reasonably likely to materially affect, our internal controls over
financial reporting.
28
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PART II
OTHER INFORMATION
OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to, and none of our properties are subject to, any material pending legal
proceedings.
Item 1A. Risk Factors
There have been no material changes to the risk factors set forth in our Annual Report on Form
10-K for the period ended December 31, 2008.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On October 1, 2008, our Registration Statement (No. 333-149290), covering a public offering of
up to 230,000,000 shares of common stock to be offered at a price of $10.00 per share, subject to
reduction in certain circumstances, was declared effective under the Securities Act of 1933, as
amended. The Registration Statement also covers up to 20,000,000 shares of common stock available
pursuant to our distribution reinvestment plan.
On January 6, 2009, we issued the initial 262,059 shares in the Offering. Prior to such date,
the Company was considered a development stage company. As of September 30, 2009, we had issued
approximately 64.5 million shares for gross offering proceeds of approximately $644.3 million, out
of which, we paid approximately $56.9 million in selling commissions and dealer manager fees and
approximately $9.6 million in organization and offering costs to CR III Advisors or its affiliates.
With the net offering proceeds, we acquired approximately $425.5 million in real estate and paid
costs of approximately $11.3 million in acquisition related expenses. As of November 12, 2009, we
have sold approximately 80.2 million shares in our Offering for gross offering proceeds of
approximately $801.2 million.
Item 3. Defaults Upon Senior Securities
No events occurred during the three months ended September 30, 2009 that would require a
response to this Item.
Item 4. Submission of Matters to a Vote of Security Holders
No events occurred during the three months ended September 30, 2009 that would require a
response to this Item.
Item 5. Other Information
No events occurred during the three months ended September 30, 2009 that would require a
response to this Item.
Item 6. Exhibits
The exhibits listed on the Exhibit Index (following the signatures section of this Quarterly
Report on Form 10-Q) are included herewith, or incorporated herein by reference.
29
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Cole Credit Property Trust III, Inc. (Registrant) |
||||
By: | /s/ Christopher H. Cole | |||
Christopher H. Cole | ||||
Chief Executive Officer and President (Principal Executive Officer) |
||||
By: | /s/ D. Kirk McAllaster, Jr. | |||
D. Kirk McAllaster, Jr. | ||||
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
Date: November 12, 2009
30
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EXHIBIT INDEX
The following exhibits are included, or incorporated by reference, in this Quarterly Report on
Form 10-Q for the three months ended September 30, 2009 (and are numbered in accordance with Item
601 of Regulation S-K).
Exhibit No. | Description | |||
3.1 | Third Articles of Amendment and Restatement. (Incorporated by
reference to Exhibit 3.1 to the Companys Pre-Effective
Amendment No. 3 to Form S-11 (File No. 333-149290), filed on
September 29, 2008). |
|||
3.2 | Amended and Restated Bylaws. (Incorporated by reference to
Exhibit 3.2 to the Companys Pre-Effective Amendment No. 3 to
Form S-11 (File No. 333-149290), filed on May 7, 2008). |
|||
4.1 | Form of Subscription Agreement and Subscription Agreement
Signature Page (Incorporated by reference to Appendix B to the
prospectus of the Company filed pursuant to Rule 424(b)(3) on
April 30, 2009). |
|||
4.2 | Form of Additional Investment Subscription Agreement for
current stockholders (Incorporated by reference to Appendix C
to the prospectus of the Company filed pursuant to Rule
424(b)(3) on April 30, 2009). |
|||
10.1 | First Mortgage, Security Agreement and Fixture Filing, dated
as of June 22, 2009, by and between Cole WM Albuquerque NM,
LLC and Aviva Life and Annuity Company (Incorporated by
reference to Exhibit 10.1 to the Companys Form 8-K (File No.
333-149290), filed on June 26, 2009). |
|||
10.2 | Junior Mortgage, Security and Fixture Filing Agreement, dated
as of June 22, 2009, by and between Cole WM Albuquerque NM,
LLC and Aviva Life and Annuity Company (Incorporated by
reference to Exhibit 10.2 to the Companys Form 8-K (File No.
333-149290), filed on June 26, 2009). |
|||
10.3 | Promissory Note, dated June 22, 2009, by and between Cole WM
Albuquerque NM, LLC and Aviva Life and Annuity Company
(Incorporated by reference to Exhibit 10.3 to the Companys
Form 8-K (File No. 333-149290), filed on June 26, 2009). |
|||
10.4 | First Deed of Trust, Security Agreement and Fixture Filing,
dated as of June 22, 2009, by and between Cole MT Las Vegas
NV, LLC and Aviva Life and Annuity Company (Incorporated by
reference to Exhibit 10.4 to the Companys Form 8-K (File No.
333-149290), filed on June 26, 2009). |
|||
10.5 | Promissory Note, dated June 22, 2009, by and between Cole MT
Las Vegas NV, LLC and Aviva Life and Annuity Company
(Incorporated by reference to Exhibit 10.5 to the Companys
Form 8-K (File No. 333-149290), filed on June 26, 2009). |
|||
10.6 | First Mortgage, Security Agreement and Fixture Filing, dated
as of June 22, 2009, by and between Cole WG South Yale Avenue
(Tulsa) OK, LLC and Aviva Life and Annuity Company
(Incorporated by reference to Exhibit 10.6 to the Companys
Form 8-K (File No. 333-149290), filed on June 26, 2009). |
|||
10.7 | Promissory Note, dated June 22, 2009, by and between Cole WG
South Yale Avenue (Tulsa) OK, LLC and Aviva Life and Annuity
Company (Incorporated by reference to Exhibit 10.7 to the
Companys Form 8-K (File No. 333-149290), filed on June 26,
2009). |
|||
10.8 | First Deed of Trust, Security Agreement and Fixture
Filing, dated June 22, 2009, by and between Cole WG
Fredericksburg VA, LLC and Aviva Life and Annuity Company
(Incorporated by reference to Exhibit 10.8 to the Companys
Form 8-K (File No. 333-149290), filed on June 26, 2009). |
|||
10.9 | First Deed of Trust, Security Agreement and Fixture Filing,
dated June 22, 2009, by and between Cole WG Fredericksburg VA,
LLC and Aviva Life and Annuity Company (Incorporated by
reference to Exhibit 10.8 to the Companys Form 8-K (File No.
333-149290), filed on June 26, 2009). |
|||
10.10 | Loan Agreement dated August 31, 2009, by and between Jackson
National Life Insurance Company, as Lender and Cole HD San
Diego CA, LP; Cole HT Durham NC, LLC; Cole KO Monrovia CA, LP;
COLE HH North Charleston SC, LLC; Cole WG Edmond OK, LLC; Cole
CV Southaven MS, LLC; Cole KO Tavares FL, LLC; Cole BB Coral
Springs FL, LLC, collectively as Borrowers. (Incorporated by
reference to Exhibit 10.43 to the Companys Post-Effective
Amendment No. 5 to Form S-11 (File No. 333-149290), filed on
November 2, 2009). |
|||
10.11 | Fixed Rate Promissory Note dated August 31, 2009 by and
between Jackson National Life Insurance Company, as Noteholder
and Cole HD San Diego CA, LP; Cole HT Durham NC, LLC; Cole KO
Monrovia CA, LP; COLE HH North Charleston SC, LLC; Cole WG
Edmond OK, LLC; Cole CV Southaven MS, LLC; Cole KO Tavares FL,
LLC; Cole BB Coral Springs FL, LLC collectively as Maker.
(Incorporated by reference to Exhibit 10.44 to the Companys
Post-Effective Amendment No. 5 to Form S-11 (File No.
333-149290), filed on November 2, 2009). |
|||
10.12 | Affiliated Party Subordination and Cross-Default Agreement
dated August 31, 2009 by and between Cole REIT III Operating
Partnership and Jackson National Life Insurance Company.
(Incorporated by reference to Exhibit 10.45 to the Companys
Post-Effective Amendment No. 5 to Form S-11 (File No.
333-149290), filed on November 2, 2009). |
|||
10.13 | Deed of Trust and Absolute Assignment of Rents and Leases and
Security Agreement and Fixture Filing dated as of August 31,
2009 by and between Cole CB Abilene TX, LLC and J. Edward
Blakey as Trustee for the benefit of Wells Fargo Bank, NA.
(Incorporated by reference to Exhibit 10.46 to the Companys
Post-Effective Amendment No. 5 to Form S-11 (File No.
333-149290), filed on November 2, 2009). |
31
Table of Contents
Exhibit No. | Description | |||
10.14 | Promissory Note dated as of August 31, 2009 by and between
Cole CB Abilene TX, LLC and Wells Fargo Bank, NA.
(Incorporated by reference to Exhibit 10.47 to the Companys
Post-Effective Amendment No. 5 to Form S-11 (File No.
333-149290), filed on November 2, 2009). |
|||
10.15 | Deed to Secure Debt and Absolute Assignment of Rents and
Leases and Security Agreement dated as of August 31, 2009 by
and between Cole CB Braselton GA, LLC and Wells Fargo Bank,
NA. (Incorporated by reference to Exhibit 10.48 to the
Companys Post-Effective Amendment No. 5 to Form S-11 (File
No. 333-149290), filed on November 2, 2009). |
|||
10.16 | Promissory Note dated as of August 31, 2009 by and between
Cole CB Braselton GA, LLC and Wells Fargo Bank, NA.
(Incorporated by reference to Exhibit 10.49 to the Companys
Post-Effective Amendment No. 5 to Form S-11 (File No.
333-149290), filed on November 2, 2009). |
|||
10.17 | Deed to Secure Debt and Absolute Assignment of Rents and
Leases and Security Agreement dated as of August 31, 2009 by
and between Cole CB Bremen GA, LLC and Wells Fargo Bank, NA.
(Incorporated by reference to Exhibit 10.50 to the Companys
Post-Effective Amendment No. 5 to Form S-11 (File No.
333-149290), filed on November 2, 2009). |
|||
10.18 | Promissory Note dated as of August 31, 2009 by and between
Cole CB Bremen GA, LLC and Wells Fargo Bank, NA. (Incorporated
by reference to Exhibit 10.51 to the Companys Post-Effective
Amendment No. 5 to Form S-11 (File No. 333-149290), filed on
November 2, 2009). |
|||
10.19 | Deed of Trust, Absolute Assignment of Rents and Leases and
Security Agreement (and Fixture Filing) dated as of August 31,
2009 by and between Cole CB Bristol VA, LLC and Alexander
Title Agency Incorporated as Trustee for the benefit of Wells
Fargo Bank, NA. (Incorporated by reference to Exhibit 10.52 to
the Companys Post-Effective Amendment No. 5 to Form S-11
(File No. 333-149290), filed on November 2, 2009). |
|||
10.20 | Promissory Note dated as of August 31, 2009 by and between
Cole CB Bristol VA, LLC and Wells Fargo Bank, NA.
(Incorporated by reference to Exhibit 10.53 to the Companys
Post-Effective Amendment No. 5 to Form S-11 (File No.
333-149290), filed on November 2, 2009). |
|||
10.21 | Deed to Secure Debt and Absolute Assignment of Rents and
Leases and Security Agreement dated as of August 31, 2009 by
and between Cole CB Columbus GA, LLC and Wells Fargo Bank, NA.
(Incorporated by reference to Exhibit 10.54 to the Companys
Post-Effective Amendment No. 5 to Form S-11 (File No.
333-149290), filed on November 2, 2009). |
|||
10.22 | Promissory Note dated as August 31, 2009 by and between Cole
CB Columbus GA, LLC and Wells Fargo Bank, NA. (Incorporated by
reference to Exhibit 10.55 to the Companys Post-Effective
Amendment No. 5 to Form S-11 (File No. 333-149290), filed on
November 2, 2009). |
|||
10.23 | Deed of Trust, Absolute Assignment of Rents and Leases and
Security Agreement (and Fixture Filing) dated as of August 31,
2009 by and between Cole CB Emporia VA, LLC and Alexander
Title Agency Incorporated as Trustee for the benefit of Wells
Fargo Bank, NA. (Incorporated by reference to Exhibit 10.56 to
the Companys Post-Effective Amendment No. 5 to Form S-11
(File No. 333-149290), filed on November 2, 2009). |
|||
10.24 | Promissory Note dated as August 31, 2009 by and between Cole
CB Emporia VA, LLC and Wells Fargo Bank, NA. (Incorporated by
reference to Exhibit 10.57 to the Companys Post-Effective
Amendment No. 5 to Form S-11 (File No. 333-149290), filed on
November 2, 2009). |
|||
10.25 | Mortgage and Absolute Assignment of Rents and Leases and
Security Agreement (and Fixture Filing) dated as of August 31,
2009 by and between Cole CB Fort Mill SC, LLC and Wells Fargo
Bank, NA. (Incorporated by reference to Exhibit 10.58 to the
Companys Post-Effective Amendment No. 5 to Form S-11 (File
No. 333-149290), filed on November 2, 2009). |
|||
10.26 | Promissory Note dated as of August 31, 2009 by and between
Cole CB Fort Mill SC, LLC and Wells Fargo Bank, NA.
(Incorporated by reference to Exhibit 10.59 to the Companys
Post-Effective Amendment No. 5 to Form S-11 (File No.
333-149290), filed on November 2, 2009). |
|||
10.27 | Deed of Trust, Absolute Assignment of Rents and Leases and
Security Agreement (and Fixture Filing) dated as of August 31,
2009 by and between Cole CB Greensboro NC, LLC and J. Edward
Blakey as Trustee for the benefit of Wells Fargo Bank, NA.
(Incorporated by reference to Exhibit 10.60 to the Companys
Post-Effective Amendment No. 5 to Form S-11 (File No.
333-149290), filed on November 2, 2009). |
|||
10.28 | Promissory Note dated as of August 31, 2009 by and between
Cole CB Greensboro NC, LLC and Wells Fargo Bank, NA.
(Incorporated by reference to Exhibit 10.61 to the Companys
Post-Effective Amendment No. 5 to Form S-11 (File No.
333-149290), filed on November 2, 2009). |
|||
10.29 | Deed of Trust, Absolute Assignment of Rents and Leases and
Security Agreement (and Fixture Filing) dated as of August 31,
2009 by and between Cole CB Mebane NC, LLC and J. Edward
Blakey as Trustee for the benefit of Wells Fargo Bank, NA.
(Incorporated by reference to Exhibit 10.62 to the Companys
Post-Effective Amendment No. 5 to Form S-11 (File No.
333-149290), filed on November 2, 2009). |
|||
10.30 | Promissory Note dated as of August 31, 2009 by and between
Cole CB Mebane NC, LLC and Wells Fargo Bank, NA. (Incorporated
by reference to Exhibit 10.63 to the Companys Post-Effective
Amendment No. 5 to Form S-11 (File No. 333-149290), filed on
November 2, 2009). |
32
Table of Contents
Exhibit No. | Description | |||
10.31 | Mortgage and Absolute Assignment of Rents and Leases and
Security Agreement (and Fixture Filing) dated as of August 31,
2009 by and between Cole CB Piedmont SC, LLC and Wells Fargo
Bank, NA. (Incorporated by reference to Exhibit 10.64 to the
Companys Post-Effective Amendment No. 5 to Form S-11 (File
No. 333-149290), filed on November 2, 2009). |
|||
10.32 | Promissory Note dated as of August 31, 2009 by and between
Cole CB Piedmont SC, LLC and Wells Fargo Bank, NA.
(Incorporated by reference to Exhibit 10.65 to the Companys
Post-Effective Amendment No. 5 to Form S-11 (File No.
333-149290), filed on November 2, 2009). |
|||
10.33 | Deed of Trust, Absolute Assignment of Rents and Leases and
Security Agreement (and Fixture Filing) dated as of August 31,
2009 by and between Cole CB Rocky Mount NC, LLC and J. Edward
Blakey as Trustee for the benefit of Wells Fargo Bank, NA.
(Incorporated by reference to Exhibit 10.66 to the Companys
Post-Effective Amendment No. 5 to Form S-11 (File No.
333-149290), filed on November 2, 2009). |
|||
10.34 | Promissory Note dated as of August 31, 2009 by and between
Cole CB Rocky Mount NC, LLC and Wells Fargo Bank, NA.
(Incorporated by reference to Exhibit 10.67 to the Companys
Post-Effective Amendment No. 5 to Form S-11 (File No.
333-149290), filed on November 2, 2009). |
|||
10.35 | Deed of Trust and Absolute Assignment of Rents and Leases and
Security Agreement (and Fixture Filing) dated as of August 31,
2009 by and between Cole CB San Antonio TX, LLC and J. Edward
Blakey as Trustee for the benefit of Wells Fargo Bank, NA.
(Incorporated by reference to Exhibit 10.68 to the Companys
Post-Effective Amendment No. 5 to Form S-11 (File No.
333-149290), filed on November 2, 2009). |
|||
10.36 | Promissory Note dated as of August 31, 2009 by and between
Cole CB San Antonio TX, LLC and Wells Fargo Bank, NA.
(Incorporated by reference to Exhibit 10.69 to the Companys
Post-Effective Amendment No. 5 to Form S-11 (File No.
333-149290), filed on November 2, 2009). |
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10.37 | Deed of Trust and Absolute Assignment of Rents and Leases and
Security Agreement (and Fixture Filing) dated as of August 31,
2009 by and between Cole CB Sherman TX, LLC and J. Edward
Blakey as Trustee for the benefit of Wells Fargo Bank, NA.
(Incorporated by reference to Exhibit 10.70 to the Companys
Post-Effective Amendment No. 5 to Form S-11 (File No.
333-149290), filed on November 2, 2009). |
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10.38 | Promissory Note dated as of August 31, 2009 by and between
Cole CB Sherman TX, LLC and Wells Fargo Bank, NA.
(Incorporated by reference to Exhibit 10.71 to the Companys
Post-Effective Amendment No. 5 to Form S-11 (File No.
333-149290), filed on November 2, 2009). |
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10.39 | Deed of Trust and Absolute Assignment of Rents and Leases and
Security Agreement (and Fixture Filing) dated as of August 31,
2009 by and between Cole CB Waynesboro VA, LLC and Alexander
Title Agency as Trustee Incorporated for the benefit of Wells
Fargo Bank, NA. (Incorporated by reference to Exhibit 10.72 to
the Companys Post-Effective Amendment No. 5 to Form S-11
(File No. 333-149290), filed on November 2, 2009). |
|||
10.40 | Promissory Note dated as of August 31, 2009 by and between
Cole CB Waynesboro VA, LLC and Wells Fargo Bank, NA.
(Incorporated by reference to Exhibit 10.73 to the Companys
Post-Effective Amendment No. 5 to Form S-11 (File No.
333-149290), filed on November 2, 2009). |
|||
10.41 | Deed of Trust and Absolute Assignment of Rents and Leases and
Security Agreement (and Fixture Filing) dated as of August 31,
2009 by and between Cole CB Woodstock VA, LLC and Alexander
Title Agency Incorporated as Trustee for the benefit of Wells
Fargo Bank, NA. (Incorporated by reference to Exhibit 10.74 to
the Companys Post-Effective Amendment No. 5 to Form S-11
(File No. 333-149290), filed on November 2, 2009). |
|||
10.42 | Promissory Note dated as of August 31, 2009 by and between
Cole CB Woodstock VA, LLC and Wells Fargo Bank, NA.
(Incorporated by reference to Exhibit 10.75 to the Companys
Post-Effective Amendment No. 5 to Form S-11 (File No.
333-149290), filed on November 2, 2009). |
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31.1 | Certification of the Chief Executive Officer of the Company
pursuant to Securities Exchange Act Rule 13a-14(a) or
15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith). |
|||
31.2 | Certification of the Chief Financial Officer of the Company
pursuant to Securities Exchange Act Rule 13a-14(a) or
15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith). |
|||
32.1* | Certification of the Chief Executive Officer and Chief
Financial Officer of the Company pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (furnished herewith). |
* | In accordance with Item 601(b) (32) of Regulation S-K, this Exhibit is not deemed filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. |
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